August 7, 2023
In our first article in this series, we argued 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 achieving the federal government’s poverty reduction objectives. In this second and the next article, we show how the Canada Revenue Agency (CRA) could make better use of the CVITP to reduce the number of non-filers more effectively than its current efforts.
Among the many Canadians who fail to file a return in any given year, there are a number who simply forget to file, file late, or skip one or two tax years. The CRA does not publish any data on the number of recent non-filers who failed to file in the last year or two. However, we believe this group represents a minority of those Canadians who do not currently file their returns. The majority are what we call chronic non-filers, those who have not filed in many years.
Part of what distinguishes these two groups – and is relevant to the various initiatives we describe below – is that the CRA does not have an up-to-date mailing address for most chronic non-filers, and therefore lacks any means of communicating with them.
The CRA will have always have a problem with some people who forget or file late in any given year. But if the CRA is to permanently reduce the number of non-filers, it is in the second group, among the chronic non-filers that the CRA needs to make significant inroads.
Limitations of current efforts
The CRA’s non-filers benefits letter campaign seems to be the focus of its efforts to encourage non-filers to submit their returns. In an article we published earlier this year, we reviewed the performance of this initiative. While the number of non-filers is estimated to be well over 1 million Canadian residents, the CRA sends out a letter to only about 15% of these people.
We believe the percentage is so small because the CRA only sends out letters to recipients for whom it has a current mailing address. It does not send out letters to clients for whom previous mail from the CRA has been returned undelivered. (The CRA records undelivered mail in the account of each client.) The larger percentage of non-filers, who do not get sent a letter, is likely to be composed of chronic non-filers who have moved away from the last mailing address on file with the CRA.
The CRA declares success if 10% of its letter recipients subsequently file a return. This amounts to approximately 1.5% of estimated non-filers. Even then, we are skeptical that letter recipients who ultimately file do this because of the CRA letter they receive.
Announced in the 2023 federal budget, two other CRA initiatives aim to“help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled”: expanding eligibility to use the CRA’s automated File My Return (FMR) phone service and piloting of automatic tax and benefit return filing in 2024. In another article we published recently, we argued that neither of these initiatives is likely to significantly reduce the number of non-filers. Although the FMR has been operating for five years, less than 10% of those eligible have used the service each year (average take-up has been limited to 50-60,000 clients); expanding eligibility threefold is unlikely to lead to a dramatic increase in usage. And the CRA’s invitations to use this service are sent by regular mail, meaning the CRA has a current mailing address for the recipient who is probably up to date in filing their past returns.
Automatic filing will probably suffer from the same problem inherent in the other two initiatives which fail to reach chronic non-filers: the CRA needs a current address for a client in order to invite them to use the service. As we explained in our recent article on this subject, there is no such thing as truly automatic return filing. When the pilot project gets set up in 2024, the CRA will likely mail a return to the client, having already populated all the relevant fields in the return of which the most important is the client’s source(s) of income. (To do this, the CRA needs to have this information on file, in the form of copies of T slips it has received at the same time as the client.) The client will then need to confirm that all the information in the pre-populated return is accurate before the CRA can process their return.
In the pilot phase of this initiative, recipients are most likely to be those for whom the CRA has a current mailing address. These recipients will have a relatively simple tax situation based on their current income information. Their recent returns on file with the CRA will show they have not traditionally claimed many if any deductions. In other words, the CRA is most likely to send pre-populated returns to previous, low-income filers, not to non-filers. Some of the recipients are likely to be traditional clients of the CVITP service.
Of the three initiatives listed above, the CRA could use the CVITP to make two of them function better. (The FMR service does not target non-filers. Given the very small number of users, we do not believe there are any gains to be made by implicating the CVITP in this initiative.)
Making better use of the CVITP – Non-filer Benefits Letter Campaign
As indicated above, the CRA sends out letters to non-filers for whom it has a current mailing address. It could:
- Identify in its letter to each non-filer the name, address, and phone number of a specific CVITP host organization operating in the vicinity of the recipient where they can get their return prepared for free. (To the best of our knowledge, this is not being done at present.) This may encourage recipients to file as they may already know the CVITP host organization referred to in the letter they receive.
- Provide CVITP host organizations with the names and addresses of every non-filer who has been referred to them. Some of these non-filers, particularly those who have simply skipped a year or will file late, may already be well known to the host organization in their vicinity. The list of non-filers referred to them will give each host organization a better picture of the number of clients they may see with prior year returns to file.
As the CRA tracks those who subsequently file following the receipt of such a letter, the CRA should be able to determine:
- If the filing rate is substantially higher with this innovation than under its previous system
- Whether recipients are filing at the CVITP host organizations they are being referred to
Making better use of the CVITP – Automatic filing
Many of the initial recipients of pre-populated returns are likely to be traditional CVITP clients. Should the CRA be successful in shifting these clients from the CVITP service to automatic filing, this will free up CVITP capacity to serve other clients, some of whom have not recently filed a return.
However, for the pilot automatic filing program to succeed, the CRA will need to ensure that recipients can get answers to any questions they may have regarding their pre-populated returns. Providing these recipients with a CRA phone number to call will not be sufficient. Some recipients do not own a phone. Others do not trust the CRA to provide clear answers to their questions. Yet again, others will simply not understand what is being asked of them.
At least in the introductory phase of automatic filing, the CRA could make use of the CVITP to improve the likelihood of its success by:
- Identifying in its letter to each recipient the name, address, and phone number of a specific CVITP host organization operating in the vicinity of the recipient where they can go to get their questions answered in confidence. The recipients may have been clients of these host organizations in the past and thus may already have established a relationship with them.
- Providing CVITP host organizations with the names and addresses of every recipient who has been referred to them. Some of these recipients may already be well known to the host organization in their vicinity. The list of recipients referred to them will give each host organization a better picture of the number of clients they may see coming through their doors seeking advice on their automatic returns.
- Providing CVITP volunteers, before the beginning of the tax season, with some information – possibly in the form of a simple training module – on what to expect should any of these recipients seek their advice.
As a result, CVITP volunteers can be ready to answer any questions these recipients may have about their pre-populated returns. The CRA may wish to include a marker in the automatic return which the CVITP volunteer can use to indicate that the recipient sought them out for advice. Especially during the pilot phase for this new initiative, this would prove useful to the CRA for understanding the extent to which CVITP volunteers have contributed to the results.
As stated above, should the CRA be successful in shifting these clients from the CVITP service to automatic filing, this will free up CVITP capacity to serve other clients, some of whom have not recently filed a return. (Current CVITP capacity to serve clients seems to be around 600,000. As we indicated in our first article, non-filers exceed 1 million. Elsewhere, we have estimated that the CVITP currently serves somewhat less than 25% of the poor in Canada.)
What about chronic non-filers?
As noted above, both the non-filer benefits letter campaign and the automatic filing pilot project depend upon using current mailing addresses to communicate with recipients. In the case of the non-filer benefits letter campaign, most of the recipients are likely to have become non-filers only in the last year or two.
As for most chronic non-filers, the CRA’s chief problem is that it does not have current mailing addresses on file. Therefore, it has no way of communicating directly with them. Yet this is the group the CRA should be trying to make progress with if it is to substantially increase its coverage of poverty reducing benefits.
We believe the CRA could also make use of the CVITP to reduce the number of chronic non-filers. This is the subject of the third and final article in this series.