In the fall of 2020, after the first wave of the pandemic had receded, the federal Liberals relaunched their minority government with a Throne Speech. Among the various pledges: make it a lot easier to file taxes, especially for lower-income Canadians.
Finance Minister Chrystia Freeland spoke of investments in Ottawa’s beleaguered IT systems and the Liberals’ plan “to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.”
It was – thinking of the annual tax filing deadline on Tuesday – welcome news. Many federal benefits are income-tested and are paid out only if a potential recipient has filed a tax return. Problem is, a lot of people don’t file their taxes. Studies done around that time had shown the number was about 10 per cent of Canadians, that Indigenous families were among those most negatively affected, and that Canadians were missing out on more than $1.7-billion in benefits.
Ottawa has failed to deliver on its 2020 promise, hardly a bold one. Several dozen countries have some version of automatic tax filing. Look at Sweden: The country’s tax agency sends out completed returns and, if the information is correct, all an individual has to do is click “approve” – and can even do so by text message. In the early 2010s, Sweden set out to build “a totally automated process for all income-tax declarations.” The system was soon handling automatic returns for 90 per cent of taxpayers.
This isn’t far-fetched. Think of how the Canadian system currently works. Early each year, an employer delivers a T4 statement of income and deductions to an employee and a copy to Ottawa. An individual then submits the same information Ottawa already has to the Canada Revenue Agency.
In spite of the 2020 throne speech, there was no mention of automatic tax filing in the minister mandate letters following the 2021 election. A year ago, however, in the Liberals’ 2023 budget, it looked like change would in fact occur.
The Liberals highlighted the fact many low-income Canadians are missing out on money, from the Canada Child Benefit to the Guaranteed Income Supplement, because they weren’t filing their taxes. Ottawa said the CRA would expand its use of a relatively easy filing service, now branded SimpleFile, that can be done over the phone. It wasn’t automatic but it was something.
The bigger news was the CRA plan to pilot a new automatic filing service, specifically for “vulnerable Canadians.”
That has not happened. In this year’s budget, Ottawa’s focus was SimpleFile. The CRA in March had said it invited about 1.5-million people to use it. But it’s not automatic. Jennifer Robson, a Carleton University professor who has written papers on the issue, called it a “very limited” initiative. Kim Moody, former chair of the Canada Tax Foundation, said the “fatal flaw” of SimpleFile is it still requires people to engage with the process. Filing taxes might be easy for a lot of people but, for many others, the system is intimidating. The result, as we know, is avoidance – and too many people not receiving benefits that should be theirs.
The budget also showed the extent of the issue: In 2020, about 17 per cent of those making $20,000 or less – one million people – didn’t file a tax return, and another 1.1-million people making between $20,000 and $80,000 didn’t file, about 6 per cent of that group.
Criticism of automatic tax filing has ranged from government having too much personal information – news flash: Ottawa’s already getting your T4s before you file your taxes – and the suggestion, from the C.D. Howe Institute in 2022, that the tax rules are too complicated for an automatic system to be widely practical. This ignores the fact that most people’s tax returns, most years, are fairly simple.
The pilot project for automatic filing that was supposed to start this year remains in limbo. Instead of the CRA having it up and running in 2024, along with a plan to “expand this service even further,” as last year’s budget said, the new plan involves more consultations and some sort of update this fall. The CRA in March vaguely talked of “the next phase of Canada’s automatic tax filing plan beyond 2025.”
The CRA’s SimpleFile effort to help low-income Canadians get their benefits is welcome, but it’s a stopgap measure. Automatic filing is the real goal, first for people missing on their benefits and then for Canadians more broadly.
The Liberals had the right idea back in 2020. It’s time to fill in the blanks on automatic tax filing.