August 1, 2023
This is the first article in a three-part series. This article argues that, while the number of current non-filers may not be as large as some popular estimates, the number is still very large and represents a serious drag on the federal government’s poverty reduction objectives. The next two articles will propose elements of a strategy in which the CRA could make more effective use of the CVITP to reduce the number of non-filers, thereby making an important contribution to poverty reduction.
Past estimates of non-filers
The 2023 federal budget document stated that 10-12% of Canadian residents eligible to file a return fail to do so. While the document does not give the source for this estimate, we believe it is based on a widely cited article by Robson and Schwartz, published in 2020. The number calculated by Robson and Schwartz is based on data from the 2015 tax year. Is it reasonable to assume non-filing rates in 2023 remain the same as in 2015?
Evidence from a paper published in 2022 by Laurin and Dahir at the CD Howe Institute suggests otherwise. Using a different method, they estimate that the rate for non-filers in 2015 was 4.5 per cent of Canadian residents eligible to file. This is far less than half the estimate that Robson and Schwartz provided. But they also provide estimates for 2016 (4.7%), 2017 (4.5%), 2018 (4.3%) and 2019 (4.2%) which, taken together, suggest that the non-filer rate may have declined since 2015.
A more recent estimate
Of course, disagreements over the methodologies employed to estimate the rates of non-filers are at the centre of the different results reached by these researchers.
Here we take an intuitively simple methodology employed by Robson and Schwarz to estimate the rate of non-filers for 2021. Early on their 2020 paper, Robson and Schwartz state:
“One approach, in working with publicly available data, might be to compare the number of returns received with the population size of the subgroup of interest in a given tax year… [W]e compare the number of returns for 2016 by gender, by age, and by province or territory of residence with the count, from official population estimates, of Canadians aged 15 years or older. The result is an estimated national non-filing rate of 9.3 percent, with higher rates of non-filing among men, residents of the territories, and younger Canadians.”
What follows is a brief exposition using the same methodology to estimate the non-filing rate for 2021.
- Census 2021 says there were 36,991,981 people living in Canada in 2021.
- The Census does not identify the number for all persons under 18. Instead, it gives groupings with 0-14 years of age being the closest. Assume that no one in that group needs to file a return. That’s 6,012,795 persons. That leaves 30,979,186 persons 15 years of age and older in 2021.
- Assume that everyone in this latter group is eligible to file. (This is a generous assumption as likely many 15-17-year-olds do not need to file as they have no taxable income.) How does this number compare with the number of returns filed for the 2021 tax year?
- The CRA statistics for the 2023 tax season show the individual income tax return filing data for previous tax seasons. There are two tables on this. One is for the total number of returns processed during the tax season. Another is for the total number of returns for the current year processed. Looking at the latter table, it shows that for the 2022 tax season (last year), there were 29,488,759 individual income tax returns filed for the 2021 tax year.
- The difference between the two figures above is 1,490,427. This is 4.8% of those 15 years of age and older in 2021 who did not file for the 2021 tax year. (Remember that this is a generous estimate of the number of persons not filing in 2021 because we are counting all 15-17-year-olds as eligible for filing.)
There are two counterarguments that could be made. First, some of these 15-17-year-olds may need to file because they earned taxable income. But none will be eligible to receive benefits. Second, the Census figure could have underestimated the total number of Canadians. Possibly, but the underestimate is not likely to be large. In any event, any underestimate is offset by the inclusion of all 15-17-year-olds in arriving at the estimate.
So what?
To repeat, using the same methodology for 2016, Robson and Schwarz found a non-filer rate (9.3%) for 2016 which is almost double the non-filer rate (4.8%) we find above for 2021. This suggests Laurin and Dahir’s finding that the non-filer rate is declining over time is reasonable.
But this still means approximately 1.5 million eligible Canadians did not file a return for 2021. The vast majority were low-income Canadians. (It is difficult to conceive that a large proportion of these non-filers were rich Canadians who were evading the payment of their income taxes.) These Canadians were thus missing out on a lot of federal and provincial or territorial benefits, many of which are income-tested, designed specifically to reduce their poverty. This is because payment of most of these federal and provincial or territorial benefits is conditional upon filing a return.
Given the 2030 objective for its 2018 Poverty Reduction Strategy, the federal government should be concerned that so many low-income Canadians are still failing to file a return. As we have shown in a recent article, the CRA’s response to this problem – an annual letter writing campaign in which non-filers are informed of the benefits of filing a return – has produced abysmal results. The 2023 federal budget document, referenced at the opening of this article, cited the (outdated) 10-12 per cent non-filer rate to justify expanding the eligibility for its File My Return service and for piloting automatic filing of tax and benefit returns. Yet we have argued in a previous article that neither of these initiatives will lead to a significant reduction in the number of non-filers.
In the next two articles, we will outline elements of a strategy whereby the CRA could make more effective use of the CVITP to reduce the number of non-filers, thereby making an important contribution to poverty reduction.