October 6, 2022
In 2021, the Canada Revenue Agency introduced a new pilot grant program that provides financial support to some CVITP host organizations. When it was introduced, we had a lot to say about it here.
The pilot program has completed the first of its three years. As is unfortunately typical of the CRA in its reporting on the CVITP, there is a dearth of information on the first year of this pilot. However, there is one important piece of information cited in the CRA’s Departmental Plan for the 2022-23 fiscal year:
“In the first year alone, the CRA sent just under one million dollars to qualifying organizations across Canada to support their efforts to ensure that vulnerable people have the ability to file tax returns and access the benefits and credits designed to support them.”
Remember: the budget for this three-year pilot grant program is $10 million; this amounts to an average of $3.3 million being available each year to support host organizations. In the sentence immediately preceding the one quoted above, the CRA’s Departmental Plan reports:
“The CRA is enhancing the Community Volunteer Income Tax Program (CVITP) by recognizing the efforts of the community organizations and their volunteers through the introduction of the first CVITP grant program to help defray the costs of and further encourage the running of free tax clinics [our emphasis].”
Disbursing less than $1 million as compared with the $3.3 million available in the first of the three years may not seem overly concerning. (Typically for the CRA, no further details are provided, so we don’t know how many filed returns this represents, how many host organizations benefited from these grants nor what the size of the median grant was.) Perhaps the pilot program just needs more time to become better known. By the end of the third year, it could be disbursing substantially more, demonstrating that it is well on the way to meeting the stated objectives of defraying host organizations’ costs of hosting CVITP clinics and encouraging more organizations to host CVITP clinics.
Unfortunately, the evidence so far suggests this is wishful thinking.
Either the CRA budgeted too much for the pilot program …
When the CRA first established the pilot grant program, it allocated a budget of $10 million over three years.
In the peak CVITP year (tax season 2019 for tax year 2018), about 835,000 returns were filed (including for prior tax years). Let’s assume for a moment that the pilot grant program had actually been operating in that year. Add to this several generous assumptions:
- The CRA paid for prior year returns (although the CRA currently counts only those returns filed with the CVITP Organization Identification Number or COIN as being eligible for the grant, so no credit is given for returns prior to 2021 that are filed during the tax season as the software does not make use of the COIN prior to 2021);
- Every host organization that filed a return got paid (although the CRA currently only pays for the returns of those host organizations which go to the trouble of applying for and getting approval of their grant application by the CRA); and
- The CRA paid $2.50 per return filed (although the CRA uses a sliding scale wherein $2.50 is the maximum amount a host organization can receive per return).
Applying all these assumptions, the CRA would have paid out at most just slightly less than $2.1 million for the 2019 tax season. Over three years (the lifespan of the pilot grant program), that would have amounted to a bit less than $6.3 million.
In the 2020 tax season, the number of returns filed plummeted due to the impact of COVID and the associated health restrictions. The grant program was designed and introduced in time for the 2021 tax season. So, the CRA knew that it would probably be paying based on a substantially lower number of returns than filed in the 2019 tax season. Furthermore, it would only be paying for the returns filed with the COIN, in other words only those filed for the 2020 tax year and onwards. All of which is to say that the amount paid out, at the very least in the first year of the pilot program, would be significantly less than our generous estimate of $2.1 million.
So why did the CRA come up with a such a large budget of $10 million?
… or the CRA planned to pay out too little
Let’s return for a moment to the same thought experiment but change one assumption: instead of paying $2.50 per return filed, the CRA paid the maximum amount per return required to disburse the full budget available for that year. At $10 million over three years, the average budget per year would be $3.3 million. This means that the CRA would have paid out 3.95$ per return filed.
Remember, in our thought experiment, we are being incredibly generous with our assumptions. When the CRA designed and launched this pilot grant program, it knew that it would probably be paying based on a substantially lower number of returns than filed in the 2019 tax season. Furthermore, it would only be paying for the returns filed with the COIN, in other words only those filed for the 2020 tax year and onwards.
So why did the CRA come up with a maximum of only $2.50 per return filed?
What does this mean for the two remaining years?
The pilot program runs for a total of three years, so it still has the 2022 and 2023 tax seasons to provide financing support. Having spent less than $1 million in the first year, this leaves over $9 million available to disburse in the next two years or an average of $4.5 million per year.
Let’s change the assumptions one last time in our thought experiment. Assume that: the full budget is spent in each of those two years, use the maximum amount currently allowed of $2.50 per return filed and pay it out for any return filed (not just those for the tax years 2020 onwards). This means that CVITP would handle filing on average 1.8 million returns in each of the next two years. This is more than double what was achieved in the best year to date, the 2019 tax season.
We think this is a highly unlikely to happen.
And what does it mean for judging the success of the pilot program at the end of the three years?
The pilot grant program is very likely to end the three years being significantly underspent. There are two design elements we stated when the pilot program was first launched which are likely to contribute to this outcome: administrative arrangements that are burdensome, deterring some host organizations from applying for the grant, combined with grant amount limits that are too low to serve as an incentive for host organizations.
If, as we suggest, the pilot program budget will be underspent, how will the CRA judge the success of this program? Since we posted our original set of articles assessing the pilot program, the CRA has published four measures against which the program will be assessed:
- an annual 5% increase in the number of organizations that participate in the program
- an annual 10% decrease in the number of organizations that do not return to the program after two years or less participation
- an annual increase in the number of volunteers associated with grant recipient organizations
- an annual increase in the number of returns filed by grant recipient organizations
In an article discussing how the program could be assessed, we pointed out that using measurements of growth as indicators of success would be particularly misleading as the pilot program coincides with the period immediately following COVID when the numbers for the CVITP plummeted and therefore could be expected to rebound anyways.
Nor do we believe that any of these measures gets at the real purpose of the CVITP. As noted in one of our articles assessing the pilot program when it was first launched, at its core the CVITP is about the income levels of the clients it serves. Thus, the pilot program should aim to increase the number of returns filed by a host organization for clients whose incomes fall at or below the poverty line, not simply the number of returns filed nor, for that matter, host organizations and volunteers enlisted in the CVITP. Until the CRA draws a closer link between its CVITP and the objectives contained in the federal government’s Poverty Reduction Strategy, it will continue to miss the mark with opportunities like its pilot grant program.
If the CRA publishes any numbers for the second year of this pilot program – not a given as the CRA does not make public any information on the evolution of the CVITP on a consistent basis – we will let you know.