Make automatic tax filing a reality
THE CRA ALREADY HAS YOUR INFORMATION
An automatic tax filing system for low-income taxpayers and for those who have straightforward tax situations is long overdue. Why? Well, tax is intimidating for most people, but particularly for those who are vulnerable, disabled, single parents, elderly or are simply trying to scrape by.
With Canada’s system of significant income redistribution through various cash handouts, such as the Canada Child Benefit, the GST credit, nationalized dental care, pharmacare and the newly rebranded Canada Carbon Rebate (come on, let’s call it what it is, a carbon tax rebate), it is a requirement to timely file income tax returns to be eligible to receive such credits.
While you can debate whether the tax system and/or whether such income-redistribution plans are good overall, the simple fact is that what Canada has today is a complex maze of credits that, again, you can only qualify for by timely filing tax returns.
Of Canada’s roughly 29 million taxpayers, the bottom 50 per cent of income earners in 2020 earned $40,700 or less and paid only 6.5 per cent of the overall personal income tax revenue, which means the top 50 per cent paid 93.5 per cent of all personal income taxes. It’s a fair assumption that most — but obviously not all — of the bottom 50 per cent would have straightforward tax-filing situations.
Canada has a system where most of the income paid to people — especially through government credits, employment income, pension income, basic investment income, etc. — is annually reported by the various payers to the recipients of such income and to the Government of Canada through various information return fillings.
This is why all employees receive T4 slips that report their annual earnings. The government also receives a copy of such information from the employer. This fact is important since critics of automatic tax filing are often passionate in their abhorrence of giving the government more data or enabling them to deal with such data.
Believe me, I’m not a big fan of the government having your data as well. But basic information such as earned income has been in the hands of government for decades and it is entirely appropriate for them to have such information.
The debate is whether they should be able to take such data already at their disposal and automatically file a tax return for you. Critics say no. I say yes, as long as taxpayers have unfettered access to such data and the ability to correct any obvious errors in the calculations/ preparations.
The idea of automatic tax filing in Canada has been around for more than a dozen years and has been introduced in other countries, such as the United Kingdom, and the United States has also been toying with the idea of introducing it.
Critics often point out that the U.K.’S experience with automatic tax filing has not been good and is prone to error. My rebuttal is that any such system will, of course, produce errors, so 100 per cent accuracy should not be the goal. Instead, the goal should be convenience, improved overall compliance and taking care of people who are intimidated with the current system.
Canada’s latest attempt at automatic tax filing was announced in the 2023 federal budget with a simple comment that it “will pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the (Canada Revenue Agency) will present a plan in 2024 to expand this service even further.”
A short update to the 2023 budget announcement came earlier this month when the CRA announced it would be expanding its Simplefile by Phone service to more Canadians by “inviting” them to participate.
“Starting in summer 2024, the CRA will also pilot Simplefile digital and paper options in all the provinces and territories,” the CRA said. “These new services will target lower-income individuals who do not file their tax returns or who have a gap in their filing history, and therefore are not receiving the benefit and credit payments they could be entitled to. The CRA plans to consult with stakeholders, community organizations and tax professionals on the next phase of Canada’s automatic tax filing plan beyond 2025.”
Two quick comments. First, the Simplefile program is not automatic tax filing. Why? It requires the participation and consent of the vulnerable population to get their tax returns done. And that will likely continue to be a problem.
Why would a person who hasn’t filed tax returns for years suddenly accept an invitation to participate in Simplefile? Just because the invitation list has been expanded doesn’t deal with that foundational issue. I see problems, including when expanded digital and paper options are introduced later.
Second, the consultation with stakeholders is long, long overdue and the plan to consult should have occurred years ago — at the very least, almost immediately after the 2023 budget announcement to try to fulfil the promise quickly. To plan a consultation for automatic tax filing “beyond 2025” (which means 2026 or some other future year) seems like a lame attempt to try to fulfil a 2023 budget promise.
Come on Canada, let’s get automatic tax filing done.
Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/ Moodys Private Client, a former chair of the Canadian
Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his Linkedin profile is linkedin.com/in/kimmoody.