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.
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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Keep a copy of every investment account in which you have non-registered funds and make sure you have a T-slip for all the investment income (dividends, interest, capital gains) you earned during the year.
Locate your notice of assessment from the year before to see the exact amount of RRSP contribution you can make this year. Also, check if there are any unclaimed contributions.
From that same notice of assessment document, check to see if there are any expenses that have been carried forward that you may use this year.
If your income is going to be substantially higher next year, do not claim your RRSP contribution this year. Wait until the following year when you are in a higher tax bracket to claim it.
If you have children currently enrolled in post secondary education, consider transferring the tuition credit to your own tax return.
If you or anyone in your family has a medical condition that restricts your daily activities, consider filing for the disability tax credit. You may be able to recover this tax credit as far back as 10 years – which is equal to about $1,500 a year.
If applicable, don't forget to record the capital gain on the sale of your cottage in Canada or vacation property outside the country. However, you may not always have to declare your summer home. Talk with your accountant to see what makes better financial sense. If the cottage, for example, has increased substantially more in value than the house you currently reside in, it may make sense to declare the summer home as your principal residence. Remember, this move does not attract capital gains and defers paying capital gains on the home you reside in.
If you need to travel outside of your region for medical care, don't forget to claim meals and travel for yourself and your spouse.
If you live in a household with two taxpayers, consolidate donations and have one taxpayer claim them all. This way the tax credit increases substantially on donations over $200.
If your income is low, don't forget to report your rent or property taxes in order to qualify for provincial tax breaks for rent and/or an HST refund, for example.
Stuck? Get in touch with an accountant. To be extra cautious, ask if they attend tax update seminars through the year to stay current. Avoid people who strictly rely on tax software.
This year, keep a file handy to hold all of your receipts and other documents required for filing taxes. This way, everything will be in the same spot come April of 2015.
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