Canadian residents with taxable income have a legal obligation to file a return. But Canadian residents with no taxable income have no legal obligation to file a return. What does the CRA do in the latter case, when a resident with no taxable income does not file a return and thus loses access to benefits that are contingent upon filing a return?
We believe the federal government has an expectation that the CRA will not be passive but will actively encourage residents to file. This is because the federal government has identified so many of the benefits contingent upon filing a return as key to achieving the objectives identified in its Poverty Reduction Strategy. And, as the federal government’s administrator of its system for filing returns, the CRA is the gatekeeper for gaining and retaining access to so many of these benefits.
The CRA’s current actions with respect to the CVITP suggest it has a highly ambivalent attitude toward the CVITP, its main program for assisting low-income residents to file their returns. Why do we say this?
For two reasons. First, we believe the CRA has adopted two approaches which, taken together, are contradictory.
On the one hand, the CRA has repeatedly stated the importance of maintain what it calls an arms-length relationship with CVITP host organizations (see 4 in diagram above) and their volunteers (see 5 in diagram). For example, on page 41 of the 2020 report on the CVITP by the Taxpayers’ Ombudsman, the CRA states that it: “…strives to provide as much support as possible to the volunteers and partner organizations, while maintaining the arms-length relationship required to mitigate the liability risks that would be associated with any prescribed involvement in tax return preparation by the CRA.”
Yet it is unclear what exactly the CRA means by an “arms-length relationship” in the CVITP context. The CRA says it needs to maintain some distance from – or, to word it another way, not work too closely with – host organizations and their volunteers to mitigate any risks the CRA might run as a result of the returns these partners prepare for clients.
On the other hand, the CRA clearly states on its website that it is prepared to do the returns of those residents with a modest income and a simple tax situation who have used a free tax clinic before or are eligible to use one (see 1 in diagram).
The CRA’s willingness to do the returns of low-income people and accept the risks this entails is puzzling. It seems to contradict the CRA’s own argument about the need to mitigate for the liability risks associated with its involvement in the CVITP return preparation process by maintaining some distance from its partners.
Second, the main rationale for the CVITP is to help low-income people access benefits and credits to which they are entitled, not to pay income tax as most CVITP clients do not owe income tax. Nevertheless, in the four years since the federal government’s publication of its Poverty Reduction Strategy (PRS), the CRA has never once publicly acknowledged the link the federal government has established between the CVITP and the PRS’s goals.
Events over the last three years should shake the CRA of its ambivalence. Just as the CRA has seen its budget for the CVITP quadrupled with the aim of doubling its client numbers, it saw those numbers dip by a third from their peak. If the CVITP is to be turned around, the CRA must get off the fence and take more initiative.
In the following article, we provide more details on all of this and options for the administration of the CVITP.