October 9, 2024
Summary: In our most recent article on the CVITP’s coverage of the impoverished in Canada, we concluded that the CVITP remains a very effective program for helping those on low and modest incomes to file their income tax and benefit returns, thereby getting the benefits to which they are entitled. We also noted that the CRA should redouble its efforts to expand the CVITP given that most Canadian residents living in poverty still do not benefit from this free service.
Yet we noted that post-pandemic, the CRA appears to have scaled back its ambitions for the CVITP. The CRA no longer sets any targets for reaching more clients and, presently, it is unclear what its goals for and commitments are to this program.
Instead, the CRA seems to be focusing its efforts on reaching Canadian residents on low and modest incomes through three other initiatives: non-filers benefits letter initiative, SimpleFile by Phone and the piloting of automatic tax filing.
In a series of three articles, we show why these three initiatives presently show less promise than the CVITP in tackling the fundamental problem of helping a greater percentage of Canada’s impoverished residents access the benefits to which they are entitled.
In this first article, we look at what the CRA calls its non-filers benefits letter initiative which it has operated for the last seven years to encourage previous non-filers to submit a return.
In the most recent year for which the CRA has reported results, just 11.4% of letter recipients went on to file a return. While this may sound impressive, it represents only 1.7% of estimated non-filers. Making a generous assumption about the nature of letter recipients, only 1% of Canadian residents living in poverty respond to this initiative. This compares with 28% who are served by the CVITP, using the same assumption. (Even then, many of these letter recipients may be getting CVITP assistance to file their returns.)
Furthermore, the CRA assumes without evidence that the simple fact of receiving such a letter, and the subsequent filing of a return is indicative of causation. In other words, we think the CRA is overly generous in claiming credit for something that might very well happen anyway, even without any letters being sent.
Despite all this, the CRA continues to tout this minimalist effort as an “effective” way of getting non-filers to file their outstanding returns. This is the only CRA initiative related to serving modest and low-income residents for which the CRA establishes an annual target in its Departmental Plan and reports on performance results in its Departmental Results Report.
This contrasts with the CVITP, which serves many more low-income residents far more effectively, yet for which the CRA establishes no annual target nor consistent performance results in its reporting to Parliament.
As many readers will already know, filing an income tax and benefit return is a necessary step toward getting and maintaining access to many federal and provincial income-tested benefits. The CVITP is a Canada Revenue Agency (CRA) administered service offered free to Canadian residents on modest incomes intended to facilitate access to benefits. Volunteers working within community-based organizations assist these residents in preparing and filing their income tax and benefit returns.
In our most recent article on the CVITP’s coverage of the impoverished in Canada, we noted that by 2023 the CVITP’s performance had largely rebounded from the large decline in service during COVID, that the CVITP remains a very effective way of reaching those living in poverty at a relatively low cost and that there is no evidence to suggest the CVITP has reached the limits of its effectiveness. Given that most Canadian residents living in poverty still do not benefit from this free service, we concluded that the CRA should redouble its efforts to significantly expand the CVITP.
Yet we noted that post-pandemic, the CRA appears to have scaled back its ambitions for the CVITP. The CRA no longer sets any targets for reaching more clients and, presently, it is unclear what its goals for and commitments are to this program.
Instead, the CRA seems to be focusing its efforts on reaching Canadian residents on low and modest incomes through three other initiatives: non-filers benefits letter initiative, SimpleFile by Phone and the piloting of automatic tax filing.
In a series of three articles, we show why these three initiatives presently show less promise than the CVITP in tackling the fundamental problem of helping a greater percentage of Canada’s impoverished residents access the benefits to which they are entitled.
Non-filers benefits letter initiative
In this first article in our series, we look at what the CRA calls its non-filers benefits letter initiative. (We last wrote about this initiative here.) For seven years, the CRA has used this “intervention” to encourage non-filers to submit a return.
How does this initiative work?
There is 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 low and modest-income Canadian residents who did not file a return in the last tax season. The CRA then sends out letters to these people using the most recent postal address it has on their files.
To be able to do this, these individuals must have filed one or more returns at some point in time in the past and, in doing this, they provided the CRA with a postal address. Because of these past returns as well as their T slips in its database, the CRA knows these individuals are on low or modest incomes.
The letters the CRA sends out are generic, reminding the recipient that they have not filed a return for the most recent tax year and outlining the benefits of filing a return. The CRA then tracks how many of the people receiving these letters file a return in the next tax season.
The CRA measures the success of this initiative based on the percentage of letter recipients who end up filing a return.
In its Departmental Plan for fiscal year 2017-2018, the CRA first incorporated a target for the non-filer benefits letter initiative 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 at that time.) While the CRA anticipated that 25% of letter recipients would file a return, only 8.1% filed a return in the 2017 tax season. Thereafter, the CRA scaled back its performance target to 10% for this initiative.
What are the results?
Prior to the 2020 tax season, the response rate hovered close to 10%. During the 2020 tax season, there were many difficulties in getting assistance with the filing of a return due to COVID related public health restrictions. Consequently, some may have foregone filing their returns in the 2020 tax season and waited instead until the 2021 tax season to file their 2019 returns. This could explain the increase in the response rate during the 2021 tax season. By the 2022 tax season, the response rate reverted close to its historical rate, with only 11.4% of letter recipients subsequently filing a return.
However, the real impact is even less impressive than it seems at first glance.
Let’s start by putting the results in three broader contexts. First, we look at how these results compare with the overall problem of non-filers.
The purpose of this initiative is to encourage people who are eligible to file but did not file in the last tax season to file a return. So, it makes sense to measure the impact of this initiative on the total pool of non-filers.
As can be seen from the results over the past seven years, only a small percentage of non-filers receive the letter. Thus, the response rate is very small when compared to the size of the non-filer problem.
Next, let’s look at how these results compare with the total number of people living in poverty.
Let us assume that all of those who receive the letter and subsequently file a return are living in poverty. (This is a generous assumption as some of the recipients are likely to be on modest incomes.) What is the scale of the impact?
The first four columns of the above table show that the impact of this initiative on the percentage of those living in poverty was very small.
Finally, how does this compare with the CVITP results using a similar assumption? When comparing the results in the fourth column with those in the sixth column of the table above, one can see that the CVITP reaches a much larger proportion of those living in poverty. And yet, one cannot assume that the results of the two initiatives are mutually exclusive. Instead, there may be substantial overlap. This is because many of the non-filers who receive these letters may end up getting CVITP assistance to file their returns.
Why are the results so insignificant?
First, the CRA needs an up-to-date mailing address for the non-filer. As any CVITP volunteer who has used Autofill My Return will know, one of the pieces of client information listed on the CRA’s database is an indication whether CRA mail to the client has been returned to the Agency undelivered. 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 CRA targets its letters only to those for whom it has a mailing address which appears to still be valid. But we assume the CRA does not waste efforts mailing letters to clients for whom it appears to have an old, invalid mailing address. Thus, many who have not filed in the past but for whom the CRA does not have a current mailing address do not receive any letter. This may explain why such a small percentage of the estimated non-filers receive the letter.
Second, the CRA letter focuses on stressing the benefits of filing a return. This assumes that a key barrier to filing a return is people’s ignorance about the benefits of filing a return. Research findings we have previously reported suggest this a highly questionable assumption. In one of our previous articles on non-filers, we also reviewed research commissioned by Prosper Canada on the main reasons that low-income individuals do not file which shows that ignorance about the benefits was not among the reasons identified. Awareness of and access to free return preparation services were more important.
Third, the CRA letter is not tailored to the needs of the recipient, in that it does not provide specific information as to where the individual can get help locally to file their return. (This is where it would have been useful to include a reference to a local community organization offering free CVITP services.) Instead, the letter recipient is simply directed to various CRA websites and a 1-800 phone number for more information.
Is it even reasonable to assume this makes any difference?
Notwithstanding the foregoing limitations, can the CRA still attribute its reported response rate to the non-filers benefit letters initiative? Up to this point, we have been assuming that numbers reported by the CRA for the non-filers benefits letter initiative can meaningfully be called results. But can the CRA even make the claim that some people file their returns because they have received these letters?
The CRA does not report on the number of non-filers from the previous tax season who were not sent a letter by the CRA (perhaps because the postal address on file was known to be wrong) but who nevertheless filed a return in the next tax season. A number from this group that approximated the number of non-filers who filed a return following receipt of the CRA letter would suggest that a letter from the CRA is not a decisive factor. Such a result would undermine confidence that the non-filer benefit letters are playing any causal role. Instead, it would be simply coincidental that letter recipients happen to file a return in the next tax season.
Lacking the presentation of any evidence to the contrary, we are highly skeptical that the simple correlation between receiving such a letter, and the subsequent filing of a return is indicative of any causation. In other words, we think the CRA is overly generous in claiming credit for something that might very well happen anyway, even without any letters being sent.
Where does this leave us?
Despite the inherent weaknesses detailed above, the CRA continues to tout this minimalist effort as an “effective” way of getting past non-filers to file their outstanding returns. This is the only CRA initiative related to serving modest and low-income residents for which the CRA establishes an annual target in its Departmental Plan and reports on performance results in its Departmental Results Report.
This contrasts with the CVITP, which has been proven to serve many more low-income residents far more effectively, yet for which the CRA establishes no annual target nor consistent performance results in its reporting to Parliament.
At its worst, the non-filer benefit letter initiative distracts the CRA from taking more effective measures to help non-filers to file their outstanding returns.
What might such measures look like?
As CVITP volunteers, we have filed the returns for many clients who have not filed for some time. We make the distinction between what we call “recent non-filers” and “chronic non-filers”. Recent non-filers are those who have not filed in the last tax season (or possibly two) who we refer to as recent non-filers. Chronic non-filers are people who have not filed in the past 5-10 years or who have never bothered to file and for whom the CRA may have no current mailing address.
The CRA could make use of the CVITP in new ways to serve these two distinct groups of non-filers. For more information on this, see our articles entitled How to Reduce the Number of Recent Non-filers by Using the CVITP Better and How to Reduce the Number of Chronic Non-filers by Using the CVITP Better.