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The Hidden Hurdles: Low-Income Tax Filing in Canada

  • 8 mins

A Vulnerable System of Tax Filing

As a social worker, the notion of aiding individuals in filing taxes was never within my expectations. I assumed that this was a skill acquired individually, through parental guidance, or managed by the government itself. While I recognized that tax filing in North America often elicited feelings of apprehension and stress during tax season, I had not comprehended the extent of its burdensome nature and its adverse impact on vulnerable Canadians. My experiences in a low-income tax clinic unveiled that tax filing in Canada and the USA transcends being merely a flawed system; it gives rise to data vulnerabilities.



The Current Tax Filing Landscape 

For the average wage earner, obtaining tax filing software, which is typically priced between $20 and $50 and is often intended for a single use, provides the convenience of filing taxes from the comfort of their own home. Data from the Fraser Institute reveals that, on average, Canadian taxpayers spend approximately seven hours completing their tax returns and dealing with appeal decisions. Given that there were approximately 31 million tax returns filed in Canada in 2023, a rough estimate suggests that Canadians collectively spend around 217 million hours on tax filing alone. While precise figures can be calculated, it is evident that we sacrifice well over a couple of billion dollars in productivity each year.


It is worth acknowledging that business owners face intricate tax filing processes due to their complex financial situations. Conversely, the majority of individuals navigate relatively straightforward tax requirements, often duplicative of information already held by the government, as employers transmit tax-related data. This redundancy is a source of frustration. Paradoxically, those most in need of filing taxes to access benefits confront the greatest barriers to doing so. In 2015, an estimated $1.7 billion in unclaimed returns among non-filers existed, underscoring the missed opportunities. In 2021, free tax clinics in Alberta facilitated returns, benefits, and credits totaling around $179 million. This data illustrates that individuals failing to file miss out on essentials such as GST/HST credits and the Canada Child Tax Benefit. While these may seem like trifles, they carry immense significance for individuals facing economic hardship. Through my work at the clinic, I've witnessed returns ranging from a few hundred dollars to several thousand dollars for clients who missed filing their taxes for a decade.


The taxing filing system, often overlooked as an administrative task, reveals itself as an intricate web that affects vulnerable Canadians disproportionately. This broken system not only drains valuable resources but also perpetuates a cycle of inequity. It is imperative that efforts be channeled into addressing these shortcomings to ensure that all Canadians can access the benefits and opportunities to which they are rightfully entitled.



Options for Low-Income Canadians

Low-income Canadians encounter diverse tax-filing challenges, including financial constraints, limited technology access, language barriers, cognitive difficulties, and information gaps. The Canada Revenue Agency (CRA) is moving away from paper filing. Some low-income Canadians, equipped with straightforward tax situations and previous experience at free tax clinics, receive CRA letters inviting them to complete their taxes via phone—a 2018-2019 innovation.


To ensure authenticity, the CRA provides a confidential agent-specific code, though this method remains relatively unknown. However, phone-based tax filing faces skepticism due to prevalent phone call scams impersonating CRA agents. These scams have triggered international investigations, fostering distrust in such services.


One might consider the availability of tax software offering free filing for those under a certain income threshold. While a viable option, it often collides with technology and literacy hurdles. Even users experienced in this method can find it confusing, and some platforms like Turbotax promote add-on services, suggesting professional oversight to avoid errors. Access to personal laptops is far from universal, and using public computers, like those in libraries, raises privacy and security concerns. The introduction of tax filing apps by companies like Turbotax and H&R adds convenience but also engenders privacy apprehensions, revealing the ease with which we overlook technology access and digital literacy disparities.


Considering these complexities, what other options are available? Low-income individuals frequently depend on assistance because of the confusing nature of tax forms. Paper returns are intricate, time-consuming, and prone to errors, posing particular challenges for gig economy workers who cannot afford extended processing times. Those without an invitation letter cannot choose phone filing, so they turn to low-income tax clinics. The reality is clear: 10-12% of Canadians do not file taxes because the system's design fails to address their diverse circumstances.


The landscape of tax filing options for low-income Canadians is fraught with complexities and inadequacies. Addressing these challenges necessitates an inclusive, technology-aware approach that empowers all citizens, regardless of their socio-economic backgrounds, to fulfill their tax obligations without unnecessary hurdles.



Navigating Low-Income Tax Clinics

Discovering assistance through a low-income tax clinic involves visiting the Canadian government's website, where individuals can search for clinics available in their city. Various options for in-person or virtual appointments exist, though accessibility may be constrained by location, with remote communities offering fewer choices. Some clinics exclusively handle current tax years, further narrowing the range of options. Moreover, certain clinics are only equipped to manage straightforward tax situations, leaving self-employed individuals grappling with limited alternatives—a predicament amplified in an age dominated by gig economy and precarious work.


While the process varies slightly across clinics, the general procedure typically involves completing an online client tax questionnaire, supplying confidential information. Subsequently, an authorization request is submitted, granting permission for a volunteer from the Community Volunteer Income Tax Program (CVITP) to file taxes on the individual's behalf. Enclosed within this correspondence is the volunteer's photo ID copy, though this step proves challenging for those who have lost their identification. In-person document submission is favored by some when they can overcome transportation barriers.


Once the documents—submitted either in person or via email—are in order, processing may span anywhere from 5 to 8 weeks. The CVITP volunteer proceeds to file the tax return with the provided information or contacts the client if discrepancies arise. Delays are commonplace due to the meticulous nature of form completion, and additional documents might be requisitioned for multi-year filings. Individual delays further ripple through the waitlist, which can accumulate hundreds of tax filers. Considering that a single clinic might rely on only a handful of CVITP volunteers, the entire process can extend to an exhaustive 8-9 months.


This journey underscores a lengthy, intricate endeavor requiring unwavering dedication and compassion from volunteers, as well as meticulous coordination and logistics from non-profit organizations. Burdened by existing responsibilities of fulfilling basic needs, non-profits are entrusted with a wholly distinct realm of assistance. Our welfare system interlaces with taxation, making their separation virtually impossible. Front-line workers, in addition to distributing food hampers, must be well-versed in benefits and taxation, a testament to the multifaceted roles they assume.


Seeking support through low-income tax clinics is a complex endeavor that encompasses various challenges. While volunteers and non-profits play pivotal roles in easing these struggles, it remains clear that a broader systemic transformation is imperative to enhance accessibility and reduce the burden on vulnerable individuals navigating the intricacies of the tax system.

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System Vulnerabilities Exposed

A return-free filing system, in essence, reduces intermediaries accessing your data, leaving you and the government as the sole actors. The absence of non-profit staff, volunteers, or private companies streamlines the process, minimizing complications. Yet, a closer examination reveals an intricate web of vulnerabilities. Notably, the transmission of personal data, such as Social Insurance Numbers (SIN), via email and websites exposes a critical weak point. The very mode of online communication employed between staff and tax filers becomes a gateway for potential fraud, rendering the system precarious. Even the initial online application, seemingly convenient, opens doors to phishing attacks, compromising both tax filers and non-profit staff.


Consider this scenario: after enduring months of waiting for tax filing, you receive an email purportedly from the tax clinic, complete with the non-profit's logo and a convincing façade. The email requests additional private information or a fresh photograph of your tax slip. It threatens that failure to act immediately could result in a three-month delay in filing or the forfeiture of benefits. Alternatively, you're urged to click a link that mirrors the non-profit's official site, ostensibly for "verification" purposes. Given the simplistic nature of many non-profit websites, creating a counterfeit site to ensnare tax filers becomes disturbingly feasible. Despite the widespread common knowledge about online safety, falling victim to online fraud remains remarkably easy.


However, tax filers are not the sole chinks in this system. Numerous non-profit organizations grapple with technology poverty, hindered by budgetary constraints that limit access to state-of-the-art systems and fraud prevention tools. These entities rely on basic databases to store client information, rendering them susceptible to malware or ransomware attacks that could compromise the financial confidentiality of countless individuals. This is just the tip of the iceberg—other threats, ranging from man-in-the-middle attacks to identity theft, pharming, advance fee fraud, and tech support scams, cast organizations into a perpetual state of vulnerability. While education and awareness campaigns offer some defense against these threats, a single lapse could exploit the entire system, a perilous inevitability.


Delving into the underbelly of the return-free filing system exposes a complex network of vulnerabilities. While streamlining intermediaries is beneficial, it's imperative to recognize the multifaceted risks that undermine the very system designed to simplify tax filing for vulnerable individuals. A comprehensive approach that encompasses cybersecurity, awareness initiatives, and technological upgrades is essential to fortify the system against potential breaches and safeguard the private financial data of those who depend on it.


Click here for Part 2 to delve into how other countries manage their tax filing systems and discover steps Canada can take to enhance its own.

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