The 2014 Federal Budget Overlooked Measure to Help Low Income Canadians

The 2014 Federal Budget has now been tabled, and the newspapers and twitter are filled with analysis of this budget.  While many are slamming the budget for being ‘all talk and no action’ there is a very important measure announced in it that is getting almost no coverage in the media. This measure helps address many of the regressive features of the GST/HST and gets more money into the hands of low income Canadians.

One of the biggest challenges levied against the GST is that it is regressive. As I have said before all taxes can in fact be regressive. Whether or not any particular tax is truly regressive depends specifically on how the tax is implemented. For example, income tax can easily be regressive but we in Canada have decided to design our income tax system as progressive. So questions about regressivity can only be answered by looking at the implementation of the tax.

With respect to the GST there were features of the GST implementation that offset its regressivity.

  1. the zero rating and exemption of some goods. 0 rated goods include basic groceries while exempted goods include things like health and financial services.
  1. general tax reform. This last one is important and gets and making sure you understand the history of policies before making statements. Our tax system underwent significant reform just before the GST (it should have been in tandem but politics got in the way). These tax reforms benefited low income Canadians and were meant to also overcome the regressivity of the GST.
  1. the GST tax credit. The tax credit is meant to offset the tax paid not to bring a household above the poverty line. It is a very specific credit with a very specific purpose.

The current administration of the GST tax credit requires individuals to apply every year by “checking the GST/HST Credit application box on their annual income tax return.” (Budget 2014, p. 327) Once checked, the CRA then considers whether this individual is eligible for the credit. CRA does not review returns for qualification for this credit when this box is unchecked. This is a curious method for administering this tax credit. CRA knows who is eligible, so why not use CRA to determine eligibility. This is a system that is used for many of our other credits. While it is not a huge burden to check the box, it begs the question of why we have it. By using this opt-in method low income individuals who overlook the box miss out on this very important tax credit.

In Budget 2014, the federal government is proposing a very significant and important reform to the administration of the GST/HST Tax credit:

Budget 2014 proposes to eliminate the need for an individual to apply for the GST/HST Credit and to allow the Canada Revenue Agency to automatically determine if an individual is eligible to receive the GST/HST Credit. A notice of determination will be sent to each individual who is eligible for the GST/HST Credit. In the case of eligible couples, the GST/HST Credit will be paid to the spouse or common-law partner whose tax return is assessed first. (p. 328)

I applaud the government’s proposal to move the GST/HST credit away from the opt-in method and towards this assessed method. This credit is important money to get into the hand of low income Canadians and this simple change will likely make a big difference to some very needy households.

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2 thoughts on “The 2014 Federal Budget Overlooked Measure to Help Low Income Canadians

  1. […] In her blog, Dead for Tax Reasons, University of Victory professor Lindsay Tedds comments on a little-discussed provision in the budget that will help low income Canadians: […]

  2. I fail to see how this will make any significant difference. The only people who will “benefit” from this change will be people whose income is low enough to qualify for the GSTC, and who do their own return on paper.

    This change has no effect on people who don’t file, get their return done by the CVITP, netfile (web or software), or use a tax preparer.

    As someone who was once poor, it’s my experience that the people who know the most about things that benefit the poor are poor people. It seems inconceivable that a low income person who is responsible and willing enough to prepare their own return, on paper, would forget or even be inconvenienced by having to check a box. They would never “overlook” this.

    I think it is somewhat telling that the budget blurb you quoted above doesn’t contain any evidence that supports the assertion that people are “missing out” on their GSTC. Now if the budget had said that based on CRA’s data, X number of low income Canadians who qualified for the GSTC (and didn’t have a spouse already claiming it) didn’t apply for it, my cynicism might be more muted.

    To me this seems more about appearances. The Harper Government-helping poor people by doing something meaningless that will affect virtually no one, but makes for a good sound bite.

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