Automatic Tax Filing:  Answer to Low Benefits Uptake?

Evelyn Jacks

Did you know that about 10 to 12% of Canadians don’t file a tax return and they are missing out on potentially $1.7 billion in benefits?  The government plans to make it possible for millions more to get their refundable tax benefits, without having to actually file a tax return.  Two specific measures are targeted to meeting this goal in the March 28, 2023 federal budget, but will they achieve goals to increase uptake?  Here’s what’s proposed for 2024:   

Automatic Filing Services.  CRA has processed close to 27.5 million tax returns for the 2023 tax filing season, and as of May 8, 94% of returns were electronically filed. Starting in 2024, CRA will pilot an automatic tax filing service to help low-income Canadians who do not file their tax returns to receive their tax benefits.

Expanded Tele-filing Services.  By 2025, the government plans to triple the number of people who qualify for the File My Return phone filing service, which has been around since 2018 to 2 million.  Unfortunately, the uptake has been poor for this program – about one tenth of the eligible filers have availed themselves of the opportunity with a noticeable decline in tax season 2022. In fact, usage of the FMR option has dropped 32% in its use since its peak in 2020, as per CRA tax processing statistics below:

Will people use the phone to file in the future?  Possibly, but history has proven that getting information out to let people about new services is difficult.  Email, internet, computer and even access may be accessible to white collar workers, but not necessarily to the low-income families and vulnerable individuals that may qualify.

Services levels at CRA also need improvement, given recent wait times when people run into difficulty – often hours at a time.  Attracting 2 million or more people to phone filing services will require increased CRA service levels.

Bottom Line:  Tax filing is deeply intertwined with life event planning.   People’s lives and incomes constantly change.  Tax returns and tax laws are complicated, and they continuously change too.  A “low income” return can belong to a proprietor or investor who is applying losses, or someone who is claiming a large RRSP and a new FHSA deduction. However, filing those tax returns is more complicated than filing a nil return to receive refundable tax credits.  

Doing any tax return to a taxpayer’s best benefit – that is, to maximize available tax credits and ensure the best tax benefits are recorded over carry-forward periods – requires the help of someone who knows both the taxpayer, the tax rules, the tax software and electronic filing technology. These tax pros are accessible to their fellow tax filers in most communities.

Would it be more effective to encourage these private tax preparers to reach out in their communities do tax returns of low earners for free, in exchange for a “per return” subsidy?

Such a public-private sector collaboration could enable a higher uptake of important social benefits by a national network of professionals who already collect and remit GST and payroll taxes to government standards.

What’s your take on the issue?  We asked that question in our May poll and have been receiving some interesting responses.  Check them out and please weigh in: Do you think that the government should subsidize tax return fees  to people can get their benefits for free?