What is an income tax and benefit return?  For many Canadian residents, it is a frighteningly complicated puzzle.  This is why each year, consistently 60% of Canadian residents ask someone more knowledgeable to prepare their return for them[i].  And for many first-time filers, the return is a veritable mystery.  Many just know they’ve been told this is something they need to do.

But between low-income and middle or high-income Canadian residents, the motivations for preparing and filing a return are very different.

For many middle and high-income Canadian residents, it is just about income taxes.  It is something that they may not like but realize they must do.  In doing so, they hope to get no nasty surprises, especially a tax bill.  Instead, they may dream of getting a hefty refund.  They may or may not realize that it is a legal obligation to file a return if they have taxable income.  They probably know that if they don’t file their return and they owe taxes, they will get charged interest on the amount owing.  There is no time limit on the tax amount owed – the CRA will maintain records and, in addition to the interest, charge a late filing penalty when the errant taxpayer finally files.

Middle and high-income residents are generally unaware there are any benefits to filing a tax return – other than possibly reducing their tax bill – because they are not eligible to receive most of them; their incomes are too high for that.  Most of their actions are based on the fear of owing the government more money and the desire to recover any overpaid income tax.  It’s why almost everyone calls it a tax return[ii].

For many low-income Canadian residents, preparing and filing a return is not about paying income tax. This is because many have incomes too low to be paying any income tax.  But they know they need to file it each year to get or maintain access to many poverty reducing benefits.  If they have no taxable income, they under no legal obligation to file a return.  They will not be charged a late filing penalty by the CRA.  But they can only claim refunds on income tax overpayments and benefits for the last ten years; after that, the CRA retains the money.

CVITP volunteers are in a privileged position.  By helping clients to prepare their returns, they gain insights into how the income tax and benefit system works (and often doesn’t work). 

Many volunteers simply like doing returns because it helps people and, unlike many of their clients, they are comfortable with numbers.  I admit I get a certain satisfaction out of completing a return and getting it filed.

But the CVITP volunteer’s role is not just to prepare and file the return.   It is also to explain the results of their work to the client and answer their questions before seeking the client’s permission to file the return.

Every volunteer should understand the principles, if not all the details, that lie behind the return preparation and filing process so they can better answer questions the client may have.

In the first article in this two-part series, I explain the purpose of the income tax and benefit return, in a relatively simple, straightforward manner.  I hope this will help CVITP volunteers to understand the context for the many details of the return that often confuse people.

In the second article, I explain the essentials of what the CVITP volunteer’s client needs to know to understand their return.  While it relies heavily on the big picture laid out in the first article, none of what is in the first article is essential for the client to know.

[i] The CRA updates data weekly which shows that 60% of Canadians consistently use EFILE to file their returns.  EFILE is the system wherein an expert files a return on behalf of a client.

[ii] Unlike the CRA which more accurately calls it an income tax and benefit return.