Canadians who don’t file their tax returns are sometimes surprised to find out that the government owes them years of benefits in arrears, said the head of a nonprofit that works to build financial literacy among low-income people.
Prosper Canada CEO Elizabeth Mulholland said her organization works with other community partners to provide financial services and literacy programs, including tax preparation programs, to help Canadians who may not be able to file tax returns.
Some people who seek such services find themselves owed as much as tens of thousands of dollars in benefits that they have yet to claim, she said.
Newfound cash can open the door to conversations about money and financial planning, she said, recalling a family being able to make a down payment on an apartment after receiving what they owed.
“Usually, the first question is: ‘Well, what am I going to do with this money?'” Mulholland said.
The federal government is increasingly relying on the Canada Revenue Agency to provide income-tested benefits to individuals, including most recently the Canada Housing Benefit and a temporarily doubled GST tax credit.
However, some vulnerable Canadians are missing out on payments because they didn’t file their returns.
Taxpayer Ombudsman Francois Boileau raised the issue in his latest annual report, released this week. At a news conference Tuesday, Boileau said he plans to advise the CRA on how to address the issue. “
“We’re still working on getting a full picture of the problem and actually coming up with concrete solutions, so that’s why there are no recommendations this year. But you bet there will be at another point in time,” he said.
Jennifer Robson, associate professor of management at Carleton University, has been researching the non-filer problem in the tax system and its impact on the provision of income testing benefits.
In a paper published in 2020, Robson and co-author Saul Schwartz found that about 10% to 12% of Canadians do not file tax returns.
Overall, the researchers estimated that working-age non-filers lost about $1.7 billion in benefits in 2015.
Why are people not filing tax returns? It’s a bit of an academic mystery, Robson said.
“We don’t yet have a good, full understanding of why people aren’t filing their returns,” she said. “Why aren’t people declaring if it means they’re leaving money on the table?”
According to her paper, the undeclared were more likely to be male, young and single. While there are non-filers in all income groups, they are mostly concentrated in the lower income brackets.
“That’s a real problem in terms of people missing out on some of these cash benefits,” Robson said.
It also has implications for program integrity given that many programs use tax filings to verify eligibility, she said.
Based on her experience working with low-income people who haven’t filed taxes, Mulholland said there are many reasons, including language barriers, cognitive issues, and even just a lack of awareness.
In 2015, newly elected Prime Minister Justin Trudeau’s mandate letter to the national revenue minister asked that the CRA proactively reach out to Canadians who are entitled to, but not receiving, tax benefits.
It also said the CRA should take the initiative to complete tax returns for some Canadians, especially those with lower incomes.
A CRA spokesperson said in an email that the agency helps more than 600,000 moderate-income individuals file their taxes each year by supporting free tax clinics. The agency is also working with Statistics Canada to better understand benefits receipts.
Robson said there is no “magic bullet” to the problem of non-filers, but a starting point is to have the CRA pre-complete tax returns for Canadians who have already provided information to the agency.
“For example, think about people who are on social assistance. There are a lot of them. The CRA knows what they are getting,” Robson said.
Mulholland said she would like to see more coordination between federal and provincial government departments and agencies, as well as community groups, to find Canadians who may be missing.
“As long as this money is lost in Ottawa, we have failed, and that failure has very serious consequences for those low-income people who were originally intended to benefit from this money,” she said.