February 17, 2023

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For six years now, the Canada Revenue Agency (CRA) has run what it calls its “non-filer benefit letter campaign”.  In essence, the CRA sends out letters to clients who have not filed a return in the most recent tax season and for whom it has a postal address on file.  These letters outline the benefits of filing a return.  Then the CRA tracks how many of these letter recipients actually file a return in the next tax season.  It measures the success of this initiative on the basis of the percentage of letter recipients who actually file a return in the year they receive the letter.

History

In the fiscal year 2021-2022 report from the CRA’s Ombudsman, the following update was provided on the CRA’s non-filer benefit letter campaign:

“As part of the Non-Filer Benefit Letter campaign for the fiscal year 2021-2022, the CRA issued approximately 175,000 letters with a positive message to promote filing behaviours and to ensure that Canadians receive the benefits and credits to which they are entitled.

“As a result of these mailings, a total of 35,000 returns were filed, resulting in over $24 million in tax refund payments and over $24 million in credits/benefits paid to Canadians.”

When the program was first reported on in the CRA’s Departmental Results Report for fiscal year 2016-2017, the CRA reported that it sent 260,000 letters out in 2016 to clients who had not filed their 2014 returns in 2015.  It then tracked the percentage of these clients who filed their returns in the 2016 tax season.  It reported that 8.3% of letter recipients had filed returns in the 2016 tax season.

In its Departmental Plan for fiscal year 2017-2018, the CRA first incorporated a target for the non-filer benefits letter campaign within its key performance indicators.  (This was included as part of the indicators for the benefits program, unlike the key performance indicator for the CVITP which was included as part of the indicators for the tax program.)   While the CRA anticipated that 25% of letter recipients would file a return, only 8.1% actually filed a return in the 2017 tax season.  Thereafter, the CRA scaled down its performance target to 10% for this initiative.

Performance to Date

Since then, it has reported each year on the response rate.  The fiscal year 2021-2022 performance – for tax season 2021 – represents the first time that the CRA has met its 10% target.  In fact, with a response rate for 17.4%, it exceeded its target.  This sounds impressive!

Scrutinizing Performance

But there’s a lot less here than meets the eye.

First, remember that the preceding season in 2020 was at the height of the COVID lockdowns.  Many who wanted to file but needed assistance (either through commercial service providers or through the CVITP) were unable to get the assistance because of the public health related restrictions.  So the exceptionally good performance of the non-filer benefits letter campaign during the 2021 tax season was probably attributable, at least in part, to the exceptionally difficult conditions for filing in the 2020 tax season.

Second, the number of letter recipients is only a small portion of the estimated number of non-filers.  This means that the number of non-filers which the CRA claims filed a return as a result of receiving a letter is a tiny portion of the estimated number of non-filers.  This suggests the CRA’s initiative is doing way too little to adequately address the issue of non-filers.

But even this is to give the CRA more credit than we believe it deserves.

We believe the initiative is poorly conceived, representing a minimalist effort on the part of the CRA.  We also believe that most of the small successes reported through the program are based on dubious assumptions.

A Minimalist Effort

There is remarkably little information available on the way this program is delivered.  Based on descriptions provided in the CRA’s various Departmental Results Reports and Plans, we know that the CRA identifies modest or low-income Canadians with low or no tax recovery potential who have not filed in the previous tax season.  It then sends them a letter which outlines the benefits of filing and encourages them to file.

As CVITP volunteers, we have filed the returns for many clients who have not filed for the past 5-10 years.  We tend to refer to these as “chronic non-filers”.  The CRA’s initiative does not appear to be focused on this group.  Instead, it is focused on a much larger group: those who have not filed in the last tax season.  (We note that chronic non-filers would be a subset of this group – they too should be recipients of these letters.  In reporting on the percentage of those who subsequently filed, the CRA simply gives an overall response rate.  It does not break out the proportion of respondents who simply failed to file in the previous tax season from those who are chronic non-filers.)

As any CVITP volunteer who has used the Autofill My Return will know, one of the pieces of client information listed on the CRA’s database is whether or not CRA mail to the client has been returned.  If it has, this is probably an indication that the postal address the CRA has on file for the client is not the most recent one.  Given the CRA’s limited reporting on this initiative, it is unclear whether or not CRA targets its letters only to those for whom it has a mailing address which appears to still be valid.  But we will assume the CRA does not waste paper mailing letters to clients for whom it appears to have an old, invalid mailing address.

The Executive Summary of some qualitative research the CRA commissioned in 2018 for its non-filer benefit letter initiative is instructive in this regard.  The purpose of this research was twofold: to learn the reason why people might not be filing their taxes, and to evaluate the relative effectiveness of two different letters that had been used.

The consultants reported that they used eight focus groups in four cities across Canada for this research.  Two groups were identified: those who had received a letter and filed their return, and those who had received a letter but had not filed a return.  It is noteworthy that the consultants report that some of the contact information the CRA had given it for the people in these two groups was no longer valid.  This is indicative of a problem we see with some non-filers, but most especially chronic non-filers, who have precarious living arrangements and are constantly on the move.

The following key findings of the consultants are of particular interest:

• “Unaided thoughts and feelings about filing taxes tended to be more negative than positive… Those who expressed negative thoughts and feelings tended to complain about a lengthy, time-consuming process; confusion and uncertainty as to what can and cannot be claimed; and frustration in dealing with the CRA.”
• “The overwhelming majority of participants did not recall receiving one of the benefit letters from the CRA.  Of the handful who did, they described receiving it, skimming it, and recycling it once they discerned the intent of the letter (to encourage them to file their taxes).  There was only one individual (across all of the groups) who claimed that receiving the letter was a helpful reminder that encouraged them to file their taxes right away.”
• “[T]here was a consensus that when one does receive something from the CRA in the mail, it is felt to be important and something that likely requires their attention.”
• “[M]any participants found the content to be overly promotional which made participants question the credibility of the letter and the CRA’s intent… [M]ost described them as a reminder to file their taxes under the guise of an invitation to earn credits and financial benefits.”
• “[T]he letters did not appear to be personalized or relevant to every individual; described as a form letter.”

Subsequent to this research, there is no information available to indicate what, if any, changes in practice the CRA has made as a result of these findings.  But one is left with the impression that, even were the CRA to personalize these letter substantially, they would still be unlikely to get most recipients’ attention and motivate them to file their return. 

Dubious Assumptions

This initiative is based on at least two assumptions.

The first is that sending benefit letters to non-filers are an effective way of motivating non-filers to file.  The research findings from above appear to suggest that this a highly questionable assumption.

The second is that non-filers’ lack of knowledge about the benefits of filing is a key barrier to filing.  In the section entitled “Why people don’t file” of our previous article on non-filers, we reviewed research commissioned by Prosper Canada on finding the main reasons that low-income individuals do not file.  Ignorance about the benefits to be gained from filing was not among the cited reasons.

Given the foregoing, we are highly sceptical that the simple correlation between receiving such a letter and the subsequent filing of a return is indicative of causation.  To word it another way, we think the CRA is overly generous to itself in concluding that a person files their returns as a result of receiving such a letter.

The CRA claims credit for something that would likely happen anyway, even without sending letters.  While we cannot be certain of this, it would be interesting to know the percentage of low-income non-filers who were not sent a letter by the CRA (perhaps because the postal address on file was known to be wrong) but who ended up filing a return.  (A proportion similar to the percentage of non-filers who filed in the year they received a CRA letter would further undermine the rationale for the non-filer benefit letter campaign.)  Regrettably, the CRA does not report this second percentage.

Conclusion

When we reviewed the non-filer benefits letter campaign two years ago in our first article on the issue of non-filers, we said it was difficult to conclude much about an initiative for which there had only been three years of reporting.  But we were sceptical about its effectiveness.

With the benefit now of six years of reporting on implementation, we are increasingly convinced that the non-filer benefit letter campaign is not an effective way of getting non-filers, particularly chronic non-filers, to file their outstanding returns.  At its worst, we think this campaign distracts the CRA from taking more effective measures to help non-filers to file their outstanding returns.

We will look at what some of these measures might be.  But before we do that, in our second article in this series we want to briefly review a report produced by the Auditor General of Canada which indicates not only that the CRA does not know how many non-filers there are but also that its efforts to date to find out are proving very ineffective.  We believe this report also contains the seeds of more effective solutions to the problem.