The federal government’s plan to introduce an automatic tax filing service in 2024 to assist low- and fixed-income Canadians did not materialize as expected. This initiative aimed to address the issue of many low-income individuals missing out on government benefits due to their failure to file tax returns annually. The Parliamentary Budget Officer estimated that implementing an automatic filing system could potentially result in the government disbursing between $1.6 billion and $1.8 billion to eligible individuals who are currently not receiving these benefits.
Typically, only individuals who owe taxes are mandated to file tax returns with the Canada Revenue Agency (CRA) annually. Many individuals, particularly those receiving government assistance, do not anticipate owing taxes and therefore do not file their returns regularly.
Instead of launching a new program, the CRA decided to expand its existing SimpleFile program earlier this year. Under this program, the CRA sends invitations to a select group of low-income Canadians to contact the tax agency and complete a short questionnaire to facilitate their tax returns. The CRA announced that it would introduce both paper and digital options for this expanded program starting in the summer of 2024.
When inquired about the usage of the new digital and paper SimpleFile options in 2024, the CRA stated that the final numbers were not yet available and referred to a previous pilot from 2023 that offered similar options. In 2023, the agency invited 118,000 people to utilize the SimpleFile program, of which only 260 individuals used the digital option, and 350 individuals used the paper option – accounting for less than two percent of the invitees who filed their returns.
Elizabeth Mulholland, CEO of Prosper Canada, expressed little surprise at the limited uptake of the 2023 program among low-income individuals. She highlighted that many individuals with low incomes tend to avoid correspondence from the CRA due to the assumption that it may bring negative news or be potentially fraudulent.
To enhance participation, Jennifer Robson, an associate professor at Carleton University, recommended making free electronic tax filing available on the CRA website for all individuals, following the model of the U.S. Internal Revenue Service.
Several countries, including the United Kingdom, Germany, and New Zealand, have automatic filing systems for low- and fixed-income earners, allowing for corrections to be made later if needed. Despite the expansion of the SimpleFile program, Canada is yet to establish a fully automated system akin to those in other nations, according to Mulholland.
The PBO discovered that 46 percent of those invited to use the SimpleFile phone system in 2023 sought assistance from the private sector to file their returns, potentially paying for accounting services despite being eligible for the free government program. Both Mulholland and Robson expressed optimism that the CRA would eventually implement an automatic filing system, albeit acknowledging that progress might be gradual.