OTTAWA – The federal government wants the Canada Revenue Agency to start filing taxes for some Canadians, particularly those who are missing out on potentially crucial benefits.
It was a short line in Wednesday’s throne speech that took all of eight seconds for Governor General Julie Payette to read, but the potential impact for some Canadians — particularly those who depend on certain benefits to make ends meet — was significant.
“The Government will also work to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need,” the speech read.
In other words, the Trudeau government promised to reverse how taxes are filed for Canadians with “simple” returns.
Not the speech, nor the government had any details to share on Thursday about what will constitute a “simple return,” when this measure will be enacted and how much it will cost.
But in all likelihood, the proposal would have CRA send affected taxpayers a pre-filled tax return based on the vast trove of revenue, benefit and employment information the agency already has in its databases. Then, those taxpayers would either confirm the validity of the information, or amend it with new information and send it back to the agency.
For Lindsay Tedds, tax policy expert and associate professor of economics at the University of Calgary, this proposal is well overdue. This kind of system already exists in countries like Sweden, Denmark, Estonia, and to a lesser degree the United Kingdom.
“It was time to do this 20 years ago,” she exclaimed. “They already have the ability to do this, and we know that because you can already receive your notice of assessment within 30 seconds of filing your taxes. They can do those auto-notices because they already have all the freaking information you submitted, and they’re just checking it against what they have on file.”
Many Canadians may be surprised by how much the CRA already knows about them and how redundant it is for them to fill in most of their annual tax return, Tedds added.
For example, employers submit all salary and benefit data to the CRA for most full- and part-time employees, and banks file information about RRSP investments directly to the agency for most of their clients every year.
According to the government, the primary beneficiaries of this new measure would be low- and fixed-income Canadians, vulnerable populations, or members of rural or Indigenous communities that miss out on valuable benefits and tax credits simply because they don’t file their taxes, which is a necessary prerequisite.
For example, Tedds said an average 12 per cent of Canadians don’t file their taxes every year. That number jumps significantly among Employment Insurance recipients (over 30 per cent) and the homeless population (up to 97 per cent), she added.
“We are missing a significant portion of vulnerable Canadians because they don’t file their taxes, many because they’re not legally required to. And yet CRA knows everything about them because we have so much third-party reporting and matching,” Tedds exclaimed.
Less than five years ago, the government had already explored the idea of filing taxes for certain Canadians. At the time, the CRA mandated the Canadian Digital Service (CDS) to develop a pilot-project that would allow the agency to essentially prepare tax returns for low- or fixed-income Canadians.
“We aimed to design a service that provides a wizard-like tax filing experience: rather than requiring tax-filers to enter their information, the service presents information that the CRA already has, then asks tax-filers to confirm the information is correct,” reads the website for the “Claim tax benefits” service.
But in 2018, the government suddenly pulled the plug on the project, much to the surprise and dismay of the CDS employees who had worked on it for well over a year and a half, two government sources explained. They were granted anonymity in order to speak without fear of repercussion.
Both pointed to a 2018 agreement between CRA and the Canadian tax preparation software industry in which the CRA promised not to develop its own tax-filing software in exchange for continued investment by the industry in their Canadian services all the while promoting new CRA initiatives.
The agreement came after the agency launched its File My Return service the same year, which helped eligible low-income individuals do their taxes.
“Some software providers and tax prepares voiced some unease with the File My Return Service,” reads a September 2018 briefing note to the minister of national revenue.
“Some software providers indicated that they would be reluctant to make new investments if the CRA’s plan was to begin offering software and other products in direct competition with the private sector.”
For Tedds, that agreement was a terrible idea and demonstrated the power of the industry’s lobby.
“It’s really exciting to see that this government move to understand that they can’t achieve their own goals if they continue to coddle that industry,” she said.
According to Tax-Filer Empowerment Canada (TFEC), an industry group representing the 10 biggest tax-preparing companies in the country, that agreement has yielded “many positive” results for Canadians.
“The Digital Service Collaboration Plan … was established in part to help ensure that low income Canadians can file their taxes in order to receive the benefits that they are entitled to, without significant new government IT spending at taxpayer expense,” the TFEC said in a statement.