Minor adjustment a major problem for poor
TheStar.com – opinion/editorialopinion
Published On Tue Nov 29 2011. By Carol Goar, Editorial Board
The move was made with the best of intentions. It should eventually improve life for low-income Ontarians. But right now many of them are falling into an unforeseen snare.
In 2010, the Ontario government announced a change to the way it pays tax credits to the province’s poorest citizens. Instead of getting one lump-sum payment at the end of the year, they would get smaller amounts every three months. The objective was to produce a steadier income flow.
Most recipients shrugged. They were struggling to pay the rent, put food on the table and keep the most aggressive bill collectors at bay. A change in the timing of their sales, property and energy tax credits wouldn’t help.
But it did affect them in a way most didn’t realize. They could no longer go to a tax preparation company at filing time and get an advance on their refund. Under the new system, there were no lump-sum tax refunds.
Few alarm bills went off at first because the switchover was gradual. But this year, social agencies and legal aid clinics started detecting distress signals.
Low-income people, thinking they could get a tax refund in time for Christmas, were still going to tax preparers. But instead of the usual cheque (worth between $900 and $1,500 depending on the size of the household) they were being offered a new deal.
The company would still prepare and file their tax return. But they had to agree to open a new savings account and notify Canada Revenue they wanted all of their federal and provincial tax benefits — everything from their national child benefit to their HST credit — deposited in this new account. They also had to sign up for a prepaid debit card, allowing them to withdraw money from their account.
Some took the bait. They soon discovered the tax preparation company had taken its fee out of the first deposit in the account (usually a monthly child benefit payment), leaving them short of rent money. Then they found out their new “bank account” had a monthly fee. Finally, they discovered that every time they used their debit card — to withdraw money, buy something, even check their balance — there was a $2 transaction fee.
Desperate to get out, they sought help. The lucky ones, whose contracts were less than 10 days old, could still be extricated. But for most, the deadline had passed.
Legal-aid advisers and social workers told them to contact their MPP immediately and ask for assistance. (In most cases, they had to figure out who the person’s MPP was and make the call themselves.)
While trying to get the existing contracts nullified, lawyers are scrambling to prevent new cases. But it is difficult because low-income people are often isolated, don’t keep track of their money and don’t respond to messages they don’t understand.
The government knew there would be transitional glitches when it phased out lump-sum tax refunds. What it did not anticipate was that the tax preparation companies, faced with the loss of a lucrative chunk of their business, would come up with a scheme like this.
There is nothing illegal about what they’re doing. But it is exploitative.
It will take a battery of correctives to undo this mess. There will have to be a province-wide information blitz in clear simple language; a concerted effort at every welfare office to steer clients away from commercial tax preparation companies; probably new regulations and perhaps a new method of delivering government benefits.
Legal aid clinics, social agencies and community organizations will have to redouble their efforts to connect low-income Ontarians with volunteer tax filers or Revenue Canada’s Telefileservice.
Economists will have to figure out a way to keep the poor filing annual tax returns, now that the financial incentive is gone.
And policy-makers will have to get better at assessing the risks of administrative tinkering.
On paper, an adjustment in the payment schedule for tax credits may look like a harmless change.
In real life it can mean a miserable Christmas for families already beset by hardship.
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