Ottawa Citizen: Tax clinics bridge gap for low-income earners

ACORN [Canada] and other antipoverty organizations offer those in need affordable tax-filing alternatives to paying hefty fees for instant cash refunds, Don Butler writes.

Last year, Wayne Mahoney paid a company $130 to prepare his income-tax return and issue him an instant tax refund. The fee was painful, but he urgently needed the money to pay some bills. "It's a big hole in my pocket," says Mahoney, 55, who lives with his wife in subsidized housing in Ottawa's west end on a $1,500-a-month disability pension. "I basically came out on the short end of the stick." Mahoney needs help with his taxes because, he admits, "I don't understand the tax system. And if you can't understand the tax system, you can't win."

This year, though, he's getting his tax return done at no charge by volunteers at Ottawa ACORN, the local chapter of a national anti-poverty organization. It's the third year that Ottawa ACORN (the Association of Community Organizations for Reform Now) has offered the free tax-preparation service. In the past two years, it has filed 1,266 tax returns for low-and moderate-income Ottawans.

The intent is to put more money in the pockets of those who need it the most by eliminating costly fees charged by firms such as H&R Block, Liberty Tax and Softron, and ensuring that those eligible for lucrative tax credits and benefits actually claim them.

"I didn't know this existed, so I was glad to hear about it," says Mahoney, who's now an ACORN volunteer. ACORN files returns electronically, meaning most people get refunds from the government within a couple of weeks. Last year, Mahoney opted for an instant refund of about $960 because "we were desperate.

We didn't have any other choice." He's not alone. Many find the lure of immediate cash in their pockets difficult to resist. Last year, H&R Block, Canada's largest tax preparation firm, did 797,000 "instant cash back" returns -- nearly 40 per cent of the two million or so tax returns the firm processes annually. The instant refunds are governed by the Tax Rebate Discounting Act, passed by Parliament in 1985. It allows the companies that handle tax returns to keep 15 per cent of refunds up to $300 and five per cent of refunds beyond that amount. Some argue that instant refunds prey on the poor. But Michelle Le-Blanc, a tax professional with H&R Block, says even high-income earners ask for them. In some cases, she says, opting for instant cash back can even save money because the discount fee incorporates the cost of preparing the tax return. "If you have a $300 refund, you're only going to pay $45 plus $2.10 for an administration fee, whereas you may end up paying $100 for a return," LeBlanc says. But Steven Burke, whose Ottawa company, PRD Tax Services, charges a flat rate of $40 to prepare personal tax returns, calls instant rebates "a scam."

"What you're really doing is giving people a two-week loan," Burke says. "If you look at what they charge for a two-week loan, in any other circumstances it would be usury. I just couldn't justify to myself doing that." Filing income taxes can be especially daunting for those on welfare or disability pensions and other low-income earners. Yet, those are precisely the people who stand to benefit from the wide array of refundable tax credits and benefits governments have designed to supplement the incomes of the millions of Canadians who struggle to make ends meet. "For many low-income people, their tax refund is a huge part of their annual income," says John Silver, executive director of Community Financial Counselling Services in Winnipeg.

"A family with four kids can get up to $12,000 in refundable tax credits and benefits." Silver's non-profit agency has been doing tax returns for low-income Manitobans at no charge since the 1970s. About 600 volunteers now handle 30,000 returns a year. The average refund is about $800, fuelled largely by targeted benefits such as the Canada Child Tax Benefit, the HST credit and the Working Income Tax Benefit. The benefits can make all the difference to a family living in poverty. For example, a family of four with a net income of $25,000 could collect more than $600 a month from the child tax benefit and companion national child benefit supplement, and a further $1,800 a year from the HST credit. But those eligible for these and other benefits won't get a dime unless they fill out tax returns and apply for them. Too often, that doesn't happen. One survey of food bank clients in Toronto about a decade ago found that 25 per cent hadn't filed tax returns.

"Many people who are on income assistance or some form of pension or disability don't think they have to file income taxes," Silver says. Others lack the financial literacy to tackle the job. "It's daunting even to start," Silver says. "If your life is one crisis after another, it's very difficult to get the ordinary things done sometimes." Recent immigrants are especially bewildered by the tax system, he says. "Some of them have a fear of authority. And some just come down with whatever receipts they can find.

They couldn't possibly get through the form by themselves." Silver says people regularly show up at his agency's tax clinic with three, four or even five years of unfiled back taxes. In Ottawa, more than 200 of the returns the ACORN program has handled were from earlier years. Even if people do file their taxes, there's a good chance they'll miss important credits and benefits if they try to complete their returns themselves. The sheer complexity of the system is a big part of the problem, says Richard Shillington, a consultant who specializes in social policy. "In many, many areas of benefits, it is absolutely impossible to describe accurately and simply the eligibility criteria," he says. "We design systems that are impossible for the average person to understand, and the onus is on you to apply. I don't think it needs to be this complicated." Figures on the take-up rates for tax credits are generally lacking, but Shillington says a government study of the GST tax credit and the child tax benefit he received under Access to Information a few years ago found that between five and 10 per cent of those eligible had not applied. The most notorious example of an under-subscribed benefit is the Canada Learning Bond, which offers low-income families grants totalling $2,000 for deposit in their children's Registered Education Savings Plans.

Six years after the program was created, only 19 per cent of those eligible have applied, according to a study published in 2010. With funding from Human Resources and Skills Development Canada, ACORN is running outreach programs to help raise awareness of the program. Meanwhile, the agency is now booking appointments for its free tax preparation service, which opens Feb. 7. To book, call 613-746-5999. The original article appeared at:

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