The federal government says it will soon introduce a free, automatic tax filing system for simple returns — a policy change meant to provide government benefits to qualified people who don’t collect them now because they skip filing their taxes.
The promise — a one-line commitment buried in the 6,783-word speech from the throne — could help hundreds of thousands of low- and fixed-income Canadians access benefits that are only paid to people who file tax returns.
By law, and in most cases, only people who owe taxes are required to file a return each year with the Canada Revenue Agency (CRA).
Many people — notably those on government assistance — don’t expect to owe the federal government anything, so they seldom file.
Under the proposed changes, the CRA itself would draw up the paperwork for such simple returns each year — using data they already have on hand about individuals’ income — to eliminate a bureaucratic burden that stands in the way of financial support.
Experts in tax policy have long said that the CRA already has enough personal information to automatically fill out tax returns for many infrequent filers. Much of the needed figures are electronically transmitted to the agency by employers and government agencies alike.
Thirty-six countries, including Germany, Japan and the United Kingdom, already permit return-free filing for some taxpayers.
Many Canadians missing out on federal money
On average, 12 per cent of working-age adults in Canada don’t send in a return each year — a number that jumps to 15.9 per cent in Ontario, according to figures compiled by researchers at the University of Calgary’s school of public policy.
As a result, many would-be recipients miss out on some federal programs like the Canada child benefit (CCB), the Canada workers benefit and the carbon tax rebate — money that could give a significant leg-up to low-income families.
Fewer than 3 per cent of homeless Canadians collect the GST/HST credit, according to research done by the Calgary Homeless Foundation.
Research from Prosper Canada, published in 2018, suggests as many as 40 per cent of eligible First Nations families aren’t collecting the CCB — a monthly cheque paid to people with kids who fall below a certain income bracket.
A 2017 CBC News report documented internal government concerns about the slow uptake of the CCB among First Nations, Métis and Inuit people.
The Liberal government reworked the benefit, which was introduced by former prime minister Stephen Harper, and tightened eligibility to send more money to low- and middle-income Canadians — but many of the neediest were still left out.
Employment and Social Development Canada, the department responsible for sending the cheques to families, cited “a mistrust of the federal government and its programs and a resistance to taxation” as reasons why so many Indigenous people were leaving thousands of dollars unclaimed.
Lindsay Tedds is a professor of fiscal and economic policy at the University of Calgary. She said tying benefit eligibility to a tax filing is bad policy because it leaves out many eligible recipients who, for whatever reason, don’t file returns.
Tedds said that for too long, tax filing and tax software lobby groups have been actively discouraging the CRA and its U.S. equivalent, the Internal Revenue Service (IRS), from implementing automatic returns for fear it could put a dent in profits.
“I find it really disturbing that someone with a very simple tax return is going to a provider to pay $60 to have them fill out something that the CRA already can do,” Tedds told CBC News.
“If we’re going to deliver benefits through the tax system then we absolutely have to rethink our tax structure that was set up in 1918. A significant number of vulnerable people are missing out.”
She said that while the change looks like a simple fix, it could go a long way toward achieving poverty reduction objectives.
A spokesperson for National Revenue Minister Diane Lebouthillier said the government is committed to making the tax process easier and more affordable for Canadians.
“In fact, in 2018, we introduced ‘File my Return’ where low and fixed-income Canadians were invited to file their tax returns through a simple and free telephone service,” the spokesperson said in a statement.
But Tedds said that program — which involves CRA agents proactively reaching out to people by phone or mail to encourage them to file in order to collect benefits — isn’t all that useful because there’s a great deal of mistrust out there, especially among Indigenous people.
“We have a colonial and institutional system whereby the interaction they have with the state is solely the state coming to take their kids away, so proactively reaching out is not going to overcome these fundamental barriers,” she said.
Tedds said many within the CRA see the institution as just a collection agency and not a purveyor of benefits — and are blind to the agency’s grim reputation.
“The CRA is not known as being a loving, caring, nurturing organization to deal with,” she said. “When we look at the data, CRA is not doing a fantastic job here.
“There are those in CRA and the Department of Finance who just don’t fundamentally understand that the tax system is actually a barrier to achieving other objectives.”