As many as 1 in 10 Canadians don't file their taxes — and Ottawa owes many of them money

Canadians who don't file their income tax returns are sometimes shocked to find out how much money they're owed by the federal government for years of missed benefits, says the head of a non-profit organization working to build financial literacy among low-income people.

Prosper Canada CEO Elizabeth Mulholland says her organization collaborates with other community partners to deliver financial services and literacy programs, including tax-filing programs that help Canadians who might otherwise not file their returns.

She said some people seeking out such services find that they're owed as much as tens of thousands of dollars in benefits they haven't collected.

That new-found cash can open the door to a conversation about money and financial planning, Mulholland said, recalling that one family was able to put a down payment on a condominium after receiving the money they were owed.

"Often, the first question is: 'Well, what am I going to do with all that money?"' she said.

CRA tasked with delivering new benefits

The federal government is increasingly relying on the Canada Revenue Agency (CRA) to deliver income-tested benefits to individuals, including the recent top-up to the Canada Housing Benefit and the temporary doubling of the GST tax credit.

However, some vulnerable Canadians are missing out on payments because they don't file their returns.

François Boileau, the ombudsperson for Canadian taxpayers, raised that issue in his latest annual report, published this week. During a news conference on Tuesday, Boileau said he's planning to provide the CRA with recommendations on how to address the issue.

"We're still trying to fully understand the problem and actually propose concrete solutions, so that's why there's no recommendations this year. But you bet there will be at another point," he said.

Jennifer Robson, an associate professor of political management at Carleton University in Ottawa, has been looking at the problem of non-filers in the tax system and its implications on the delivery of income-tested benefits.

In a paper published in 2020, Robson and co-author Saul Schwartz, a professor in the School of Public Policy at Carleton, found that about 10 to 12 per cent of Canadians don't file their tax returns.

In total, the researchers estimated that the benefits lost to working-age non-filers was about $1.7 billion in 2015.

Why don't people file their tax returns? It's somewhat of an academic mystery, Robson said.

"We don't yet have a good, full understanding of why people don't file the return," she said. "Why would people not file a return if it means they're leaving money on the table?"

According to her paper, non-filers are more likely to be male, young and single. And although there were non-filers across all income groups, they were most heavily concentrated in lower income brackets.

"It's a real problem in terms of people missing out on some of those cash benefits," Robson said.

It also has implications for the integrity of programs, she said, given that many programs use tax filings to verify eligibility.

Many reasons why

Based on her experience working with low-income people who haven't filed their taxes, Mulholland of Prosper Canada said there's a whole host of reasons why, including language barriers, cognitive issues and even a lack of awareness.

In 2015, newly elected Prime Minister Justin Trudeau's mandate letter to the national revenue minister asked that the CRA proactively reach out to Canadians who are entitled to, but not receiving, tax benefits.

It also said the revenue agency should offer to do the work to complete tax returns for some Canadians, particularly those with lower incomes.

A CRA spokesperson said in an email that each year, the agency helps more than 600,000 people with modest incomes file their taxes by supporting free tax clinics. The agency is also working with Statistics Canada to better understand the take-up of benefits.

Robson said there's no "silver bullet" to address the issue of non-filers, but a starting point would be to have the CRA pre-complete tax returns for Canadians whose information is already with the agency.

"Think, for example, about people who are on social assistance. That's a lot of people. The CRA knows what their income was," she said.

Mulholland said she'd like to see more co-ordination across federal and provincial government departments and agencies, as well as community groups, to get to Canadians who may be missing out on benefits because they aren't filing their taxes.

"As long as the money just lapses in Ottawa, we're failing, and that failure has really harsh consequences for low-income people who are the intended beneficiaries of that money," she said.