A new proposed tax filing service could give Canadians over $1 billion in unclaimed government benefits in the next few years, according to a report from the Parliamentary Budget Officer (PBO).
Canada’s fiscal watchdog released an analysis of the planned new automatic tax filing system, which the federal government announced in its 2023 budget. It aims to help lower-income Canadians who do not file taxes or have filing history gaps.
According to a 2020 study, between 10 and 12% of Canadians don’t file a tax return annually and, therefore, may not receive the benefits for which they’re eligible.
REPORT: “Expansion of SimpleFile by Phone and the implementation of an automatic tax filing system” https://t.co/BnVIsAVPno #cdnecon #cdnpoli pic.twitter.com/lfnlWdqdeq
— Parliamentary Budget Officer (@PBO_DPB) June 13, 2024
The PBO says that if implemented, the system could give those who don’t file their taxes $1.7 billion in unclaimed benefits from 2024 to 2025 to $1.9 billion from 2028 to 2029, totalling about $9 billion over five years.
That estimation includes money from government benefits like the Canada Child Benefit (CCB), the Canada Workers Benefit (CWB), the GST credit and Canada Carbon Rebate (CCR), and others that are only distributed to individuals who file their taxes.
According to the report, the proposed service would also send the CCR to more households that don’t file tax returns outside BC and Quebec. However, that could slightly reduce the amount received by Canadians since more households would “share the same envelope.”
How would the automatic tax filing service work?
The PBO says that the Canada Revenue Agency (CRA) has published limited information about the design and reach of the final phase of the automatic filing system.
The report notes that the CRA would be facilitating the service, completing the tax returns of individuals who don’t file and for whom the agency holds sufficient information on file to do so.
Many countries already have systems that don’t require most taxpayers to file a return.
“For example, tax authorities of nearly 30 countries provide a prefilled tax return including a preliminary tax liability assessment to their resident, who can then review and modify the information on the tax return if needed before its submission,” reads the analysis.
A 2023 study found that 42% of families with annual income under $50,000 and about two-thirds of social assistance benefits recipients in 2019 filed simple tax returns or a T1 return that does not include any source of complexity as defined by CRA.
This finding supports the idea that the agency could independently complete the tax returns of many low-income Canadians through an automatic filing system using the information it collects.
According to the federal watchdog, the cost of administering an automatic filing service would be $57 million in the 2024 to 2025 fiscal year and reach up to $65 million in 2028 to 2029.
The government has already made steps towards other forms of automatic filing systems, like piloting a digital and paper version of its SimpleFile service in all provinces and territories starting this summer.
There is also SimpleFile by phone, an automated phone service operated by the CRA that helps low-income Canadians file their taxes more simply.
The service is invitation-based and, according to the PBO, is expected to expand eligibility to two million Canadians by 2025.
The federal watchdog says the CRA is consulting experts and community organizations and will provide an update regarding the automatic filing system in the fall of 2024.