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CRA knew clawbacks would cause low-income taxpayers hardship, memo shows

13 June 2023

Via The Globe and Mail // June 13, 2023

The Canada Revenue Agency was aware that a planned ramp-up this past winter in its debt collection activities could result in confusion and financial hardship for some low-income individuals at a time of high inflation, according to a memorandum sent to the Minister of Revenue.

The briefing, which was prepared for Minister Diane Lebouthillier and signed by CRA Commissioner Bob Hamilton, noted the agency would deploy “empathetic messaging” in its communication about the resumption of benefit and tax refund offsets. But the same document shows the agency planned to use its routine practices when collecting the debt, which include full clawbacks being applied to individuals and families living below a strict measure of low income in some cases.

The memo was obtained by journalist Dean Beeby under the Access to Information Act and shared with The Globe and Mail. The document comes from Mr. Hamilton as well as CRA Deputy Commissioner Brigitte Diogo, although only Mr. Hamilton’s signature appears on the copy of the documents reviewed by The Globe. (For more information on The Globe’s ongoing investigation into Canada’s access system, please visit Secret Canada.)

The document details how the CRA planned to reinstate a number of debt collection activities it had paused during the COVID-19 pandemic, how it expected the clawbacks might affect low-income individuals and families, and how the agency would handle communication around the reset.

But it was only in April that the agency sent out a plain-language e-mail warning about the clawbacks to individuals who might be impacted and who had signed up for electronic notifications.

The resumption of offsets came as a surprise for many taxpayers, including some families who saw drastic reductions in their child benefit payments beginning in March. Some low-income parents said the clawbacks sent them scrambling to pay for essentials such as groceries and rent.

As a way to provide financial relief to households during the pandemic, the CRA temporarily stopped its practice of withholding or cutting back benefit payments, and in some cases tax refunds, to offset Canadians’ government debts.

But with the crisis waning and the economy largely back to normal, the agency restarted some of the clawbacks in October and, according to the memo, planned to fully restore its offset activities as of Feb. 6. The Globe couldn’t confirm whether the CRA actually implemented that timeline.

In the memo, the agency said it would communicate “early and often” how and why it would apply clawbacks to help the public and affected individuals understand the impact of the measures. But the memorandum is dated Feb. 3, just three days before the planned rollout.

The CRA announced the restart of the clawbacks on some Government of Canada web pages, on the login portal for online CRA accounts and in social-media posts.

In an e-mailed statement Tuesday, the agency also said it distributed information about the resumption of offsets to tax preparers, among others, at the beginning of the tax-filing season, which officially kicked off Feb. 20 this year. And the agency said it sent individual statements of account to taxpayers with outstanding COVID-19 debts in February and March.

In an e-mailed statement, Jérémy Collard, Ms. Lebouthillier’s press secretary, said the CRA also “proactively invited a dozen key reporters, as well as over 1,700 organizations, to help relay this important information to the public.”

The Globe was among the media outlets that received such communication. But those invitations went out on March 25 and April 4, when the agency had already started clawing back benefits.

The memorandum also said the CRA would use public messaging to encourage individuals facing financial hardship to get in touch to set up, where possible, “a mutually satisfactory arrangement.”

However, the CRA has not widely communicated what it deems to be financial hardship and how it assesses who might qualify for relief measures, such as smaller benefit reductions or longer repayment timelines.

For benefit offsets, the CRA uses a statistical measure of low income as a baseline to determine who may be eligible for leniency. According to the briefing, as of February, that threshold was an annual net income of $27,514 for an individual, $34,254 for couples and $51,128 for a family of four.

For households at or above those income levels, the CRA can claw back the full amount of a benefit to help recoup an existing debt, the document says. For those below that low-income line, the agency only offsets a benefit payment in specific circumstances.

For the Canada Child Benefit, which the agency can only reduce to recoup overpayments of the same benefit, clawbacks are 50 per cent of expected payments for households below the low-income threshold.

The briefing also notes that Canadians could see benefits and tax refunds clawed back even if they had already set up a plan to repay their government debt. In a web page describing repayment arrangements, the CRA notes it is authorized to withhold benefit and credit amounts even when taxpayers are already making instalment payments.

But the memorandum notes clawbacks coming in addition to scheduled debt repayments may cause “confusion” and financial hardship for some individuals.

The document suggests the agency treated the issue mainly as a public-relations problem, rather than devising solutions to lessen the impact on low-income Canadians, according to Elizabeth Mulholland, chief executive of Prosper Canada, a national anti-poverty charity.