March 2, 2021
Enhancing and Expanding the Canada Revenue Agency’s Community Volunteer Income Tax Program For Those Who Need It The Most
Action required: Provide better targeting and more grant funding to help ensure that the Community Volunteer Income Tax Program is able to provide a free service to all of those individuals who most need it.
Background: The Community Volunteer Income Tax Program or CVITP is a pan-Canadian program administered by the Canada Revenue Agency (CRA). It is intended to provide free service in the preparation and filing of income tax and benefit returns to individuals with low and modest incomes. In 2019, 741,460 people used CVITP services to file 835,220 returns generating $1.9 billion in refunds and benefits. These services were provided across Canada by 3,560 community-based organizations and their 19,240 volunteers, almost all of which delivered this service without any financial support from any order of government. In 2019 and earlier, the majority of these organizations offered this service only in March and April.
The Prime Minister’s January 15, 2021 Supplementary Mandate Letter to the Minister of National Revenue, the Honourable Diane Lebouthillier, calls for her to enhance and expand the CVITP.
As a pilot project over three years starting in 2021, the CRA is making grant funds totalling $10 million available to support the community-based organizations which host these CVITP tax clinics. The stated objective is to “make the work for these free tax clinics a little easier and encourage more organizations to sign up. This will let them help more taxpayers to file their tax returns.” In 2019, on average community-based organizations assisted 208 people. As the average number of returns filed per person was 1.13, this means that the average host organization filed 235 returns. (However, as there are a small number of community-based organizations in a few large urban areas in Canada which each assist thousands of people to file their returns each year, the median number of people assisted and returns filed by host organizations is likely to be significantly less than this.) According to the CRA’s grant funding formula, this means that the average host organization which applies for and is awarded a grant will receive a maximum of $1,000. (If the median number of returns filed by host organizations is 200 or less, the median amount on offer to host organizations which apply for and are selected for grants is a maximum of $500.)
Some low-income individuals are chronic non-filers and thus lose out on any of the benefits and credits offered through the income tax and benefit return, including those which are designed specifically to target individuals on low incomes. The CRA first reported on a non-filer benefits letter initiative to encourage these non-filers to file in its Departmental Results Report for FY 16/17. Using the most recent postal addresses it has on file, it sends letters to these individuals, encouraging them to file. For the first year and each subsequent year in which the CRA has reported on this initiative, less than 10% of the individuals the CRA contacted subsequently filed one return or more.
Issue: Within its 2018 Poverty Reduction Strategy (PRS), the Government of Canada has given specific targets for reducing poverty in Canada by 2020 and 2030, based on the official poverty line which uses a Market Based Measure. The CRA’s CVITP is identified in the PRS as one of the government’s initiatives which contributes toward meeting these targets.
This makes sense because the income tax and benefit return is increasingly used by the federal, provincial and territorial authorities as a tool for assessing individuals’ eligibility for income-tested benefits and credits. Obtaining and maintaining access to these benefits and credits is conditional upon filing a return.
Those with taxable income are legally required to file a return. Low-income individuals who do not have taxable income are not obliged to file a return. Nevertheless, they are encouraged to do so to obtain the many income-tested benefits and credits that can help reduce poverty.
However, there is no evidence that the CRA has made any link between the PRS and the CVITP in its operations. Its Departmental Plans, Departmental Results Reports, and T1 Final Statistics make no reference to the PRS and provide no data relevant to the objectives in the PRS. Thus, there is no assurance that low-income people who need the free service the most are getting access to it.
When it first started reporting on the CVITP in its Annual Report to Parliament for FY 12/13, the CRA only reported on the number of returns filed through the CVITP. Following the Treasury Board Secretariat’s introduction of the Policy on Results in 2016, the CRA’s Departmental Plan for FY 17/18 included its first Results Framework, incorporating one performance indicator which tracked the number of returns completed through the CVITP. In the CRA’s Department Plan for FY 19/20, it modified its CVITP performance indicator to track the number of people assisted rather than the number of returns completed.
Despite having access to income-related information on all of the individuals filing through the CVITP, the CRA provides no information on the income distribution of these individuals. The CRA continues to report only on the total number of people assisted through the CVITP.
Each year, the CRA suggests income ceilings for host organizations to use when selecting clients for free CVITP services. In urban areas, the suggested income ceilings for smaller families are significantly higher than the official poverty line while those for larger families are generally below the poverty line. There is no data available to indicate the income ceilings currently being used by CVITP host organizations.
It is highly unusual for the federal government to rely entirely on the resources of community-based organizations to deliver such an essential service nationally to vulnerable individuals without providing any financial support. The current pilot project with grant funding is a welcome change in policy, even though it marks a substantial departure for the CRA. However, the small grant amounts on offer will not go very far toward covering the costs that organizations incur in hosting free CVITP tax clinics. It is difficult to see how the funding formula will offer an incentive to existing host organizations to expand their operations and other community-based organizations to consider providing CVITP services. Furthermore, there is no attempt within the funding formula to encourage community-based organizations to prioritize individuals with lower incomes. The only income criterion with respect to eligible individuals is that they have a “modest” income.
Within its Results Framework, the CRA included an indicator for its non-filer benefits letter initiative starting with its Departmental Plan for FY 17/18. The performance indicator was initially 25% but this was revised downward to 10% the following year. To date, the CRA has never met this modest target. Furthermore, the number of letters the CRA issues appears to be only a portion of the actual number of low-income non-filers. The low response rate means that the number actually filing in any one year as a result of this initiative represents a very low proportion of the pool of low-income non-filers. CVITP host organizations, which are usually embedded in their local communities and have extensive networks of contacts with other local social service groups, are natural allies in the CRA’s effort to get low-income non-filers to file. Individuals who are encouraged by the CRA to file will often turn to these host organizations to obtain assistance in filing a return. As many of these individuals are living on very low incomes, they often live in precarious circumstances. Helping such individuals to file frequently requires more work on the part of host organizations. However, to date the CRA has not made any effort to work directly with CVITP host organizations to help reach more of these chronic non-filers.
Proposal:
The purpose of this proposal is to start aligning the CVITP with the PRS, so that it explicitly contributes to the objectives laid out in the PRS. The proposal provides stronger financial incentives to community-based organizations offering CVITP tax clinics, encouraging them to prioritize their free return preparation services to individuals falling below the poverty line. Filing income tax and benefit returns for these individuals provides greater focus of the limited resources of the federal government and these organizations on delivering a free service to those who most need the benefits and credits provided through the filing process. Consequently, this will have a greater impact on reducing poverty than the CRA’s current approach.
There are two dimensions to this proposal. Combined, they can be used to enhance and expand the CVITP in line with the Prime Minister’s instructions to the Minister of National Revenue.
1. Results
The CRA needs to change the CVITP performance indicator within its Results Framework to reflect the connection between the CVITP and the PRS. For example, four possible indicators against which the CRA could report are:
(1) the percentage of people assisted by the CVITP who fall below the poverty line;
(2) the percentage of people falling below the poverty line who are not assisted by the CVITP;
(3) the percentage of people assisted by the CVITP who fall below the poverty line and were classified the previous year as a non-filer; and
(4) the percentage of people falling below the poverty line who are not filing.
The CRA could then establish performance targets against each of these indicators.
2. Resources
The CRA needs to provide significantly greater financial support than what is currently on offer through its pilot project. More substantial resources are needed if it is to encourage existing host organizations to expand their operations and other community-based organizations to consider providing CVITP services.
3. Combining results and resources
The CRA needs to design its funding formula to link its grant with CVITP performance indicators which are connected to the PRS. Resources need to be directed explicitly towards those who need free CVITP services the most, including individuals living below the poverty line and hard-to-reach non-filers. This can be done two ways.
First, grant funding could be conditional upon host organizations assisting a minimum percentage of people based on their income characteristics. For example, only those CVITP host organizations which serve a minimum percentage of people below the poverty line would be eligible to receive the grant funding.
Second, grant funding could be differentiated based on the previous filing history of the people assisted. For example, supplementary amounts could be awarded to host organizations for the returns they file for prior years. This would also have the benefit of compensating CVITP host organizations for their additional efforts to encourage non-filers to file.