The CRA and Automatic Tax Filings
In her 2020 Speech from the Throne, Right Honourable Julie Payette, Governor General of Canada, addressed many potential changes that may be adopted by the Canadian government to address the revenue shortfalls precipitated by the COVID-19 pandemic. One potential new program mentioned by the Governor General would be a new tax filing system whereby individuals will have their income tax returns automatically filed on their behalf with the Canada Revenue Agency each year.
While at first glance this may seem like a long-overdue addition to our self-filing income tax system, the interposition of “automatic” returns could see benefits for some and have unforeseen consequences for others.
The CRA and Automatic Tax Filings
The addition of “automatic” returns to the income tax filing framework of the Canada Revenue Agency (CRA) would allow for the filing of millions of individual tax returns each year that otherwise go unrecorded. The CRA already has access to most of the requisite taxpayer information and receives much of what would be required to file simple returns from employers and institutions. While the idea of an “automatic” filing program may seem radical to some, if Canada were to allow for “automatic” returns today, we would be the 37th nation to do so.
Right now, the CRA offers “File My Return” services, whereby low-income taxpayers can receive income tax refunds and benefits simply by sharing personal information. Taxpayers do not have to complete any calculations or fill out any paper forms. However, as of now not every taxpayer is permitted to file using this service.
Those who are eligible receive confirmation via mail of their eligibility for the File My Return services. Taxpayers must complete this process via telephone after receiving their eligibility letter in the mail. “Automatic” returns would be different from this process as, presumably, no action would have to be taken on the part of the taxpayer in terms of filing. For example, in the UK, taxpayers who meet all of their income tax remittance requirements at the source (usually having their taxes deducted directly from income earned) and are not required to make any self-assessment for any other reason, still qualify for benefits and refunds despite never having personally filed a return on their own behalf or having shared additional information with the UK tax collection service.
Automatic Tax Filings – Who Benefits?
Many Canadians do not file their tax returns each year. For example, in Ontario approximately 16% of adults do not file an annual tax return. This could be for a host of reasons, one of the main reasons being that in situations where taxpayers do not believe that they owe anything to the government, they do not file a return. The program could abridge this gap and provide for millions of additional returns each year.
Ultimately, it will be the federal government who decides what the eligibility thresholds for the “automatic” return program would be. These standards would determine to whom the program would apply.
The “automatic” returns are reportedly slated to be free for all citizens. Citizens who previously did not have access to certain benefits because due to non-filing would have the potential to have their filings up-to-date and consequently become eligible for federal tax benefits, such as the Disability Tax Credit or the Canada Child Benefit. Thus, “automatic” returns have the potential to improve access to federal programs among marginalized members of the citizenry, whether their lack of access to proper filing is the result of financial bars or a low degree of financial sophistication.
Additionally, low-income Canadians with simple income tax returns may be able to avoid filing costs altogether, as in lieu of paying a tax professional to file their returns, the CRA would be completing their returns free of charge.
Automatic Tax Filings – Who Loses?
If a taxpayer’s returns do not fall into the “simple” category, the taxpayer may be under a mistaken belief that the automatic filing system would cover the taxpayer’s filing requirements. This may be the case where a taxpayer qualifies in one taxation year, but the filing circumstances of the taxpayer change in a subsequent year such that the taxpayer no longer meets the program’s eligibility requirements. There can be stark penalties and interest applied to Canadian taxpayers who fail to meet their income tax filing requirements. This could create a potential risk to taxpayers under the mistaken belief that their returns have been adequately filed through the “automatic” return program.
All of this information is also speculative, as no details of the “automatic” return program were announced during 2020’s Speech to the Throne. Careful planning and administration of the program would be central to its success. While an “automatic” return program could pose potential risks to Canadian taxpayers, to many Canadians it could finally provide much needed access to tax refunds and federal programs and services. If you need help with filing your taxes, call us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.