The Ontario Government has been changing the way that it pays out refundable tax credits from one lump-sum payment to cheques issued throughout the year. Most people with lower income in Ontario are eligible to get money back when they file their income tax return from credits like the Ontario Energy and Property Tax Credit and the Ontario Sales Tax Credit.
In years past, these amounts were paid as a lump-sum refund (which could also include federal tax credits and refunds on taxes paid on work income). Many people would file their income taxes as early as possible using a tax preparation company and get an upfront payment from that company (less their fee) equal to the estimated refund. For many low income people, that money was used to pay for Christmas presents or winter clothing or to get caught up on bills early in the New Year.
With this change in the way credits are paid out, that lump sum refund at tax time may be much smaller or nonexistent. Instead, some of the credits have already started to be paid out at different times of the year, and as of July of 2012, all the credits will be bundled together and will paid out monthly as the Ontario Trillium Benefit.
The change is meant to help low income Ontarians by making this money available to them throughout the year, rather than having to wait to the end of the year. But it is having unintended consequences as well.
Some tax preparation companies are changing the way they do business around the filing of tax returns. With no lump sum refund coming to their clients, these companies have asked their customers to sign up for a “bank account” (owned by a cheque cashing company) and to change their direct deposit instructions to Canada Revenue Agency to have all their future tax credits and tax-delivered benefits (including the HST credit, the Ontario Child Benefit, the Canada Child Tax Benefit and the NCBS) directed to this account. Once money starts flowing into this account, the tax preparation company takes their fee for the preparation of the return, and another fee is taken out for the debit card that is needed to access the account. Then there are additional $2.00 fees for using the debit card for almost every transaction including buying something, taking out cash from a bank machine (other than their bank machine), and even making inquiries about your account. There is also a monthly fee for the bank account itself. Those fees could really add up in the long run.
It’s a bit of a catch-22, because everyone needs to file their income tax return to be eligible for these credits. However, there are other options to filing your return which many people don’t know about. For example, there are free tax preparation clinics for low income people run by community agencies, like Seniors Home Support in Renfrew area and Carefor in the Pembroke region. In addition, people with simple tax returns may be able to use the Canada Revenue Agency’s Telefile service to file by telephone.
If you have already signed the papers to agree to open this type of “bank account” and later change your mind, The Consumer Protection Act gives you the right to cancel any contract within 10 days of receiving a copy of the papers you signed. If it is has been more than 10 days since you received your copy of the contract, you can contact the Renfrew County Legal Clinic (613-432-8146 or 1-800-267-5871) for advice or speak to John Yakabuski’s office if you have other concerns.