January 5, 2025
Summary: Every fall, the Department of Finance Canada provides an update informing the public about the state of the federal government’s finances and key economic development. The Fall Economic Statement (FES) for 2024 was issued on December 16. Intriguingly, it touched on the issue of filing the returns of low-income Canadians.
The articles in this two-part series tackle both what the FES said and what it did not say about this subject as the government’s omissions were as relevant to the CVITP as its treatment of the filing of returns for low-income Canadians.
The first article provided commentary on what the FES had to say about advancing its agenda for the automatic filing of low-income Canadians’ income tax and benefit returns. This second article highlights two areas of relevance to the CVITP where the FES might have been expected to say something but was silent.
First, given the potential concerns identified in the first article surrounding the use of an opt-out provision with automatic tax filing, it is surprising that the FES did not suggest, by way of assurance to any sceptics, that the CVITP, which is designed to help the very community being targeted for automatic filing, would continue to remain an option for filing a return at no cost in the 2026 tax filing season.
Second, the CRA’s pilot grant program for the CVITP terminated in 2024. If the Canada Revenue Agency (CRA) is going to continue to provide this funding on a more stable footing, then the logical place to announce this is in the December FES. Yet the FES was also silent on this issue. If there is going to be any continuation of CRA grant funding for the CVITP, it is probably now too late for a new funding announcement to have any impact on the plans of existing and new CVITP host organizations for the 2025 tax filing season.
There are three possible alternative explanations for these omissions. Perhaps the CRA is simply slow but will eventually secure permanent funding for the CVITP. However, given the change before and after the FES in the CRA’s messaging about future CVITP grant funding, this seems unlikely. It seems more likely that, in the minds of senior CRA officials at least, the futures of automatic tax filing and the CVITP are inextricably linked. As automatic tax filing becomes the norm for low-income Canadian residents, they probably believe the CVITP could be substantially scaled back.
The uncertainty around the timing of this eventuality yields two different funding scenarios. If one believes that automatic tax filing will come soon, then no further CVITP grant funding is needed. If, on the other hand, one believes that automatic tax filing is still a few years away, one can always provide temporary funding which is subject to renewal on an annual basis.
The latter two scenarios are disruptive to the CVITP’s future operations, to varying degrees. Regardless, all three scenarios suffer from a flawed assumption, that shifting to automatic tax filing will address the problem of non-filers.
As shown in the first article of this two-part series, automatic tax filing was originally proposed as the federal government’s solution to the problem of low-income Canadians failing to get the benefits to which they are entitled. But automatic tax filing as currently envisaged will not help current non-filers, in particular chronic non-filers, to file their returns. The CVITP has had some success in doing this.
There is also a very real risk that many low-income Canadians will opt out of automatic tax filing once it becomes a reality. The CVITP needs to be well positioned to offer an alternative method for helping low-income Canadians who opt out of automatic tax filing to get their benefits.
If the CRA is concerned about helping low-income Canadians file their returns and get the benefits to which they are entitled, it must not gamble with the CVITP at the expense of the dream of automatic tax filing. It should be approving a source of stable grant funding for the CVITP as soon as possible. In the longer term, if or when automatic tax filing has been introduced, it can still re-assess the long-term viability of the CVITP in its current form.
Every fall, the Department of Finance Canada provides an update informing the public about the state of the federal government’s finances and key economic development. The Fall Economic Statement (FES) for 2024 was issued on December 16. Intriguingly, it touched on the issue of filing the returns of low-income Canadians.
The articles in this two-part series tackle both what the FES said and what it did not say about this subject as the government’s omissions were as relevant to the CVITP as its treatment of the filing of returns for low-income Canadians.
The first article provided commentary on what the FES had to say about advancing its agenda for the automatic filing of low-income Canadians’ income tax and benefit returns. It concluded that the federal government will continue to pursue automatic tax filing, egged on in part by social policy advocates who believe this is the best way to get non-filers the benefits they are entitled to. Yet many are ignorant of the legal and operational constraints the CRA faces in making this anything but a distant reality, the many shortcomings of its 2024 SimpleFile pilot, and the increasingly tenuous situation in which the CVITP – the chief mechanism at present for meeting this policy objective – presently finds itself.
Why refer to the CVITP as being in an increasingly tenuous situation? This second article highlights two areas where the FES might have been expected to say something about the CVITP but was silent.
The absence of any role for the CVITP in automatic tax filing
During 2024, the CRA avoided using its existing CVITP network to support its SimpleFile pilot for automatic tax filing. This was an error of its own making. Why say this?
As noted in the first article in this two-part series, many previous CVITP clients received invitations to use SimpleFile by Phone. But most preferred to ask CVITP volunteers to file their returns. Through prior experience, they have come to know and trust the CVITP system. On the other hand, previous communications with the CRA have left them confused or lacking the confidence to manage CRA correspondence. Building on the trust it has established within the community over the last 53 years, the CVITP network with its host organizations and volunteers could have been instrumental in facilitating adoption of the CRA’s new methods for filing a return.
As was also mentioned in the first article of this two-part series, the FES is proposing to go beyond the new methods the CRA used in the SimpleFile pilot. Instead, it suggests a new method which would allow the CRA to automatically file the returns of certain low-income Canadians. Those who did not want to use this method could opt out and use other more traditional methods for filing a return. The CVITP would normally remain one of those traditional methods available to those who opt out.
Given the concerns associated with the use of an opt-out provision rather than the reverse, it is surprising that the FES did not mention the CVITP as a free alternative that would continue to be available for filing the returns of those who opt out of automatic filing in the 2026 tax filing season.[i] After all, this trusted service has proven successful over the past 53 years in helping the very community being targeted for automatic filing. This might have assured sceptics about low-income Canadians’ ability to maintain access to their benefits.
The most likely explanation for omitting any reference to the CVITP is that one part of the CRA bureaucracy was simply not talking or listening to the other when the new automatic tax filing proposal was being discussed internally. After all, automatic tax filing is an initiative managed by the CRA’s large tax service (which employed 43,866 individuals last year) whereas the CVITP is managed by the CRA’s small benefits service (which employed 2,658 individuals last year).
But there might also be another reason.
The absence of any new grant funding for the CVITP
Activity eligible for the CRA’s pilot grant program for the CVITP, which began in 2021, finished at the end of May 2024. The CRA has known for some time now that its four-year pilot would end in the fall of 2024, with the disbursement of grants covering CVITP host organization activity between June 1, 2023, and May 31, 2024. If the CRA considered this program to have been a success, then it needed to identify a stable source of funding well in advance of its 2025 tax filing season.
Recently, the CRA has been running an ad campaign encouraging more community organizations to host new CVITP clinics. Presumably the grant program, which is still reflected on the CRA’s CVITP website, could be one factor drawing in more community organizations.
In November, the CRA posted the following information on its website: “The CRA acknowledges the success of its CVITP Grant pilot, which provided over $10 million dollars to local community organizations in the first three years and is on track to provide another $6M in 2024. The CRA is seeking a source of permanent funding for 2025 and beyond in order to continue offering the grant. The CRA will be transparent with community organizations and share plans for the 2025 filing season in December 2024.”
One of the key purposes of a FES is to announce any new funding initiatives that are identified in the middle of the fiscal year. The FES is usually delivered in November. The logical place to announce a source of permanent funding for the CVITP grant program would be in this year’s FES.
Yet the December FES was also silent on this issue. Instead, the CRA’s message above was changed late in December to read “The CRA acknowledges the success of its CVITP Grant pilot, which has provided over $15 million dollars to local community organizations in the last four years. We continue to assess the long-term viability of the program, including a source of permanent funding for 2025 and beyond. We hope to provide more information early in 2025.”
As of the date this article was published, nothing had yet appeared on the CRA’s website sharing its plans for the 2025 filing season. If there is going to be any continuation of CRA grant funding for the CVITP, it is probably now too late for a new funding announcement to have any impact on the plans of existing and new CVITP host organizations for the 2025 tax filing season.
CRA announcements of increases to CVITP grant funding during the pilot were usually poorly timed to have any incentive effect on host organizations’ decisions for the next tax filing season. These were lost opportunities. Sadly, this time seems to be no different.
What is really going on here?
In what follows, I outline three alternative scenarios. The reader is welcome to draw their own conclusions on the probability of each scenario. I will also weigh up which of these I believe most likely represents what is really happening.
1The optimistic scenario – permanent funding is coming for the CVITP
Why is the government taking so long to announce new, stable funding for the CVITP? These decisions often take time. It may simply be a question of bad luck with the timing.
In this scenario, the CRA considers that the CVITP service will remain critical for helping current and future low-income Canadians residents file their returns. It eventually obtains permanent funding to support the CVITP. Given the rules attached to federal government grants, only CVITP activities undertaken following the approval of this funding would be eligible for grant funding. This means that, at the very least, CVITP activities since June 1, 2024, before the approval of such funding would not be eligible for CRA grants.[ii]
A temporary interruption in grant funding would create some confusion – especially the longer the gap between May 31, 2024, and the approval of permanent funding – but would not constitute a threat to the continuing viability of the CVITP.
Unfortunately for the CVITP, this scenario is very improbable. Why? As previously indicated, the logical time to announce permanent funding would have been with the publication of the FES. That did not happen.
The differences between the CRA notices in November, prior to the FES, and late in December, after the FES, hint at a more fundamental change.
To repeat, the November statement says that “The CRA is seeking a source of permanent funding for 2025 and beyond in order to continue offering the grant.” Permanent funding seems assured. It is just a question of time. However, the late December statement says, “We continue to assess the long-term viability of the program, including a source of permanent funding for 2025 and beyond.” This suggests the CRA is less certain about the long-term viability of the CVITP than it was a few months earlier. What could possibly cast doubt on a program that has operated so successfully for the past 53 years? The emergence of automatic tax filing as a greater policy priority.
In the minds of senior CRA officials, the futures of automatic tax filing and the CVITP are inextricably linked.
Senior decision makers within the CRA (or elsewhere in the federal government) probably believe that automatic tax filing in the form outlined within the FES will inevitably become a reality, even if not as early as 2026. They may think that as automatic tax filing becomes the norm, the CVITP will no longer be needed as the principle means of helping low-income Canadian residents to file their returns. The CVITP could then be scaled back (or even wound down). If this scenario is plausible, then there is no reason to secure permanent funding for the CVITP.
2The pessimistic scenario – no further funding for the CVITP
In this scenario, the CRA estimates that automatic tax filing is coming soon and is thus unwilling to seek approval for any further CVITP grant funding. A lack of any commitment to further financial support would cripple the future effectiveness of the CVITP. There would be no incentive for new community-based organizations to host CVITP clinics. Assuming the timetable and effectiveness of the CRA’s plans for automatic tax filing, some current host organizations might also decide to bow out from offering further CVITP services. CVITP operations might dwindle in size faster than anticipated.
Yet, given the current political situation, automatic tax filing will not happen soon as the legislation project proposed in the FES is unlikely to move forward before a federal election is called in 2025. And it is anybody’s guess as to what the next government might do with this idea.
The least that can be said is that automatic tax filing is unlikely to be ready in time for the 2026 tax filing season. In the meantime, the CRA may very well be stuck in a halfway house, possibly continuing to experiment with SimpleFile by Phone and the other two SimpleFile methods it developed for its 2024 pilot but unable to move forward with anything like what the government has proposed in the FES.
3The disruptive scenario – temporary funding is renewed on an annual basis
In this final scenario, the CRA considers that the CVITP service is only necessary to maintain until automatic tax filing is in place. Thereafter, it is prepared to let the CVITP shrink. In the interim, the CRA is only willing to provide grant funding subject to renewal on annual basis. Given the history within the CRA’s pilot grant project of poorly timed announcements of grant funding increases, any incentive effects could very well be lost in this case. The uncertainty surrounding the CRA’s long term commitment to the CVITP would also undermine CVITP host organizations’ confidence in planning future investments for the expansion of their CVITP services. The CVITP would struggle to grow further.[iii] Instead, the CVITP would fall further behind in serving those living in poverty.
In the current circumstances, I believe this third scenario is the most likely. Ironically, it is the uncertainty surrounding the introduction of automatic tax filing, an unproven method, that is leading the CRA to gamble with the long-term viability of the CVITP, a program that has functioned successfully for the last 53 years. Will the next government make automatic tax filing a priority or will it choose to prioritize something more essential like tax reform? Even if it opts for automatic tax filing, when will this get introduced? In the face of these unknowns, the CRA will probably only commit, at best, to keeping the CVITP on life support with some temporary funding.
The CRA is missing the fundamental objective
Yet all three scenarios suffer from a flawed assumption, that shifting to automatic tax filing will address the problem of non-filers.
As shown in the first article of this two-part series, automatic tax filing was originally proposed as the federal government’s solution to the problem of low-income Canadians failing to get the benefits to which they are entitled. But automatic tax filing as currently envisaged will not help current non-filers, and in particular chronic non-filers, to file their returns.
The CVITP has had some success in doing this. Certainly more so than any other CRA initiative.[iv] But much more needs to be done to help non-filers to file their returns and get their benefits.[v] The CVITP is much better suited to meet this challenge than automatic tax filing as currently envisioned.
As noted in the first article, there is also a very real risk that many low-income Canadians will opt out of automatic tax filing once it becomes a reality.
Only in the optimistic scenario would these individuals be able to turn to the CVITP for free assistance in filing their returns. In the disruptive scenario, which I consider much more likely, the CVITP would not be well positioned to offer an alternative method for helping low-income Canadians who opt out of automatic tax filing to get their benefits.
If the CRA is concerned about helping low-income Canadians file their returns and get the benefits to which they are entitled, it must not gamble with the CVITP at the expense of the dream of automatic tax filing. The CRA should be approving a permanent source of stable grant funding for the CVITP as soon as possible. In the longer term, if or when automatic tax filing has been introduced, it can still re-assess the long-term viability of the CVITP in its current form.
[i] At the end of the section dealing with automatic tax filing, the FES notes that “Throughout the development of automatic tax filing, ensuring Canadians’ ability to opt-out of the CRA filing on their behalf will remain a central focus.”
[ii] My impression from speaking with many CVITP clinic coordinators is that they are assuming the grant funding is a given; they are unaware that it was only offered on a pilot basis and that nothing has yet been approved for CVITP activities after May 31, 2024.
[iii] The CRA’s Departmental Results Report for the 2023-24 fiscal year highlights that the CVITP filed 16% more returns than in the previous year. However, the report fails to note that this only brought the CVITP number of returns filed back to where it previously stood in the 2019 tax filing season and that the 2019 number had been achieved before the introduction of the CVITP grant funding pilot project.
[iv] The results of the CRA’s non-filer benefits letter initiative are trivial by comparison.
[v] Despite these efforts, the number of non-filers is estimated to still be substantial.