Toronto –
Tax time is on the horizon once again.
Filing taxes can be a stressful and time-consuming endeavour. But while the federal government pledged a year and a half ago to simplify the process and implement automatic tax filings, Canadians are still waiting.
In its September 2020 speech from the throne, the federal government announced it would “work to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.”
But nearly a year and a half later, the feds and the Canada Revenue Agency (CRA) have yet to implement any changes to the way we file taxes — changes that some experts say are long overdue.
“The amount of time and aggravation and money that people spend simply filling out forms, either physically or online or paying a third-party expert … seems like a lot of wasted energy and time for a lot of people,” tax expert Jamie Golombek told CTVNews.ca over the phone.
Golombek, who is managing director of tax and estate planning at CIBC Private Wealth, calls it “a bit nonsensical” that every year, Canadians are required to report to the CRA numbers that are already published on T4s and other tax forms — forms that the agency already has.
Several OECD countries already have a tax agency reconciliation system in which citizens aren’t required to file their own taxes. These include Estonia, Chile, Spain and the Nordic countries. In these countries, the national taxation agency uses the tax forms that it already has in order to automatically generate a return. Citizens would only have to manually submit a filing to report corrections or self-employment income.
“Your employer is already giving your information to the government. So why do you have to give it to them again when you file the tax returns? It’s the same information,” Golombek said.
Golombek also notes that the CRA could expand on its existing “Auto-fill my return” feature, which allows tax filers using certified tax software, at the click of a button, to automatically fill out their return with information that the CRA already has.
“You have a version of this already. So why couldn’t the government pre-populate a tax return for you with all the calculations done and everything like that?” he said.
BARRIERS TO TAX FILING
Tax policy expert and Carleton University associate professor Jennifer Robson told CTVNews.ca that such a system could help a lot of people in Canada, particularly those who face barriers to tax filing.
Robson, along with Carleton University public policy professor Saul Schwartz, authored a 2020 study which estimated that 10 to 12 per cent of working-age adults in Canada, many of whom live below the poverty line, don’t file taxes.
“The CRA is really good at going after people who owe money,” said Robson in a phone interview with CTVNews.ca “But the people that Saul and I are worried about in our paper are the ones that don’t owe money.”
The proportion of non-filers is even higher among those who are on social assistance. A 2018 report from policy researcher John Stapleton estimated that over 30 per cent of Ontarians on social assistance weren’t filing their taxes.
Some of the barriers to tax filing that non-filers face include a lack of awareness of the benefits of filing, and a lack of knowledge on how to file, according to a 2017 focus group study conducted by the CRA. Lack of access to technology and English or French proficiency were other examples of barriers cited in the report.
As a result, Canadians who are unwilling or unable to file taxes could be missing out on benefits administered through the CRA, such as the Canada Child Benefit or the Canada Worker Lockdown Benefit. Robson’s study estimated that, in 2015, $1.7 billion in benefits went unclaimed.
“They’re missing out on those, which means, all else being equal, their income is less than it could be. It also means that those government programs are less effective than they could be,” said Robson.
Non-filers are also excluded from other income-tested government programs such as subsidized childcare offered by many Ontario municipalities, pharmacare in PEI and rental assistance in Manitoba.
“It also means that the data that we have on what’s going on in household incomes is skewed if we’re leaving out people who are non-filers,” Robson said.
CANADA’S TAX SYSTEM TOO COMPLEX TO AUTOMATE, REPORT ARGUES
Some tax policy experts have argued that the complexity in Canada’s tax system poses a significant hurdle to implementing an automatic tax-filing system.
A report published last month by the C.D. Howe Institute argues that, given the large number of deductions and credits in Canada’s tax code, trying to implement an automatic filing system would be a “challenging idea.” The authors also say that other countries with existing tax agency reconciliation systems have far simpler tax codes.
“The tax system is actually pretty complex. It has a lot of tax provisions,” report co-author and C.D. Howe director of research Alexandre Laurin told CTVNews.ca over the phone. “(Automatic tax filing) would be a very difficult thing to do without simplifying the tax system.”
According to the report, there are 143 credits, deductions and benefits for the 2021 tax year, and it’s only expected to grow in the future. In the last federal election, the Liberals promised to implement more deductions and credits for everything from home appliance repairs to relocation expenses for construction workers.
“There’s too many specific deductions and boutique tax credits,” Golombek agreed. “And that makes it, I think, impossible for other than the most basic tax return to be done automatically.”
The report estimates that only about 32 per cent of filers would have a “basic” tax return – one that the CRA would have all of the information on file.
“In theory, it sounds great. But in practice, if it’s so difficult to implement, it doesn’t seem like a very good solution,” Laurin said.
However, Golombek and Robson believe automatic filing would still go a long way in helping many non-filing Canadians – particularly those who are on social assistance.
“I think that if we had some level of automated filing for basic returns as a default for people with either certain income limitations or certain family scenarios, then I think more people would be eligible for these government benefits,” Golombek said.
Laurin would rather see government benefits be decoupled from the requirement to file taxes. In the U.K., for example, people aren’t required to have filed a tax return to claim their child benefit.
“Automatic tax-filing is a very blunt solution to a much narrower problem,” Laurin said. “There are other ways to get to that problem that would be more targeted.”
The CRA said in an email statement to CTVNews.ca that the agency is continuing to work with stakeholders and community organizations and develop a free and automatic tax-filing service for those with simple returns. The agency also appeared to acknowledge the complexity of Canada’s tax system and the large number of tax provisions.
“We are exploring with stakeholders how best to interact with Canadian tax filers to further automate our processes as we do not always have all of the information available to ensure that Canadians have access to their full credits and benefits,” CRA spokesperson Etienne Biram said.
“In the interim, we will continue to leverage existing tools to further enhance automated tax filing services for Canadians.”
