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Filing Taxes Can Help Low-Income Canadians Escape Poverty

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Most Canadians would like to see an end to poverty. What if we told you that one organization, using the existing social benefits system, found a way to get $21 million into the pockets of 9,000 low-income individuals in Winnipeg? This is not Robin Hood and his gang -- it's the Community Financial Counselling Services (CFCS), an organization that helps people living at low income to file their tax returns. They have been doing this important work for 42 years.

The latest federal budget makes an important commitment to low-income Canadians -- to help them complete and file their tax returns. Many might assume this is a way for the government to bring in more revenue. In actual fact, for the large majority of Canadians earning less than $40,000 a year, filing taxes doesn't mean a bill to pay -- it means extra benefits to collect.

This part of the budget was called Helping Canadians Receive the Tax Benefits They Deserve and promises that the Canada Revenue Agency (CRA) will contact low-income individuals who have not filed a return, telling them what benefits they may be entitled to receive.

We often hear about the impact of poverty and income inequality on health, educational outcomes and child and adult well-being. Might encouraging people to file their taxes help people avoid poor outcomes? A look at some examples suggests an answer.

Many Canadians have no idea they would get money back, and they fear being told they have to pay the government for back taxes they cannot afford.

In Sudbury, Ontario, Mary, a single parent with two young children paying $800 a month to rent an apartment works part-time at minimum wage to earn $14,000 a year. By filing her taxes, she can access child benefits, the GST/HST credit, the federal working income tax benefit, the Ontario Trillium Benefit and the Children's Activity Tax Credit. She could more than double her income to $31,845 by filing her taxes -- in other words, not bad -- and this would raise this family above the poverty line.

Raj, a recently widowed senior in Manitoba, aged 60 and disabled, struggles to live on $7,800 a year in a private apartment. If she files her taxes she could receive a $674 monthly Allowance for the Survivor benefit since her deceased spouse was over 65. This benefit, as well as other federal and provincial refundable tax credits, would raise her annual income to $19,540, bringing her above the poverty line.

And it is not just additional income that filing taxes provides.

In Manitoba and Ontario, filing taxes allows some low-income people to access provincial prescription drug coverage. It also allows people with severe disabilities to receive extra tax credits and retirement savings grants.

So why don't many low-income people file taxes?

Many Canadians have no idea they would get money back, and they fear being told they have to pay the government for back taxes they cannot afford. The CFCS, while accessing $21 million, found the total taxes owed by the 9,000 individuals they saw last year was $169,704. Almost no one owed anything.

Tax filing support is a hugely important anti-poverty and health intervention.

The Canada Revenue Agency supports programs that prepare taxes for low-income Canadians through its Community Volunteer Income Tax Program -- that's a good thing. But these programs mostly operate in tax filing season, when waits are long and demand exceeds supply.

Before 2008, the CRA had more funding, provided more personnel, computers, in-person training and assistance with tax issues to agencies in many inner city areas. Many of these programs were forced to scale back or close when the CRA's funding was cut back.

Tax-filing services such as these should be reinstated -- and in fact extended -- to provide service to low-income Canadians throughout the year.

Volunteer tax-filing clinics often have trouble dealing with complex tax situations. From our experience, it is difficult to train volunteers to deal with the variety of complex tax situations that arise. Volunteer tax filers need access to knowledgeable tax preparers to assist in these situations. CRA provides a national toll-free line to assist volunteers, but more support is often needed.

Filing taxes is also often held up by individuals who don't have the identification or documentation necessary to access certain benefits to which they may be entitled. The CRA should work with provincial governments to address this issue.

It is time we make sure all low-income Canadians are accessing the benefits Parliament has already agreed they deserve. It is incumbent on the government to make sure everyone is aware of the benefits they are due. The CRA needs to provide strong support to ensure barrier-free tax filing for all those in need.

USEFUL LINKS

Child and Family Benefits Calculator: gives you estimated Child Tax Benefit, GST & Working Income Tax Benefit

Old Age Security payment amounts: includes tables for estimating supplement benefits such as Allowance for the Survivor based on income

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