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As Canadians miss out on benefits, Ottawa promises automatic tax filing is on the way

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As some vulnerable Canadians who don't file their taxes miss out on benefits, the Canada Revenue Agency is expected to pilot a new automatic system next year.

This week's federal budget said the agency will also present a plan by 2024 to expand the service, following consultations with stakeholders and community organizations.

The move toward automatic tax filing, first promised in the 2020 speech from the throne, is one of several budget measures the Liberals say are meant to help Canadians with the cost of living.

Jennifer Robson, an associate professor in political management at Carleton University, said she's "cautiously optimistic" about the move.

"This has the potential to be transformative," said Robson, who has published research on people who don't file their taxes.

Automatic tax filing is already a reality in many other countries, including the United Kingdom and New Zealand.

Robson said that in Canada, it would likely involve the CRA pre-filling a tax return with the information it has on file. Then the agency would give the individual an opportunity to update the return or submit additional information, such as eligible medical expenses.

Experts and advocates have called for automatic filing, noting many vulnerable Canadians miss out on benefits to which they are entitled.

Canadians are generally not required to file tax returns every year unless they owe money, but the federal government is increasingly relying on the Canada Revenue Agency to deliver income-tested benefits to individuals.

That includes Canada Child Benefit, as well as the recent top-up to the Canada Housing Benefit and the temporary doubling of the GST tax credit.

Although a move toward automatic filing isn't a "shiny new program," it's a small change that could have a significant impact on affordability, said a former head of economic strategy and planning for Prime Minister Justin Trudeau's government.

"Sometimes, actually, having a big transformational impact on people's lives can come through doing some boring stuff," said Tyler Meredith.

"For many people who might not be receiving some of those benefits today that they're entitled to, that's potentially thousands of dollars that they could access."

A 2020 report co-authored by Robson estimates that 10 to 12 per cent of Canadians don't file their taxes. Although there were non-filers across all income groups, they were most heavily concentrated in lower income brackets.

The report estimated the value of benefits lost to working-age non-filers was $1.7 billion in 2015.

Beyond getting benefits to people, Meredith said the change might also help the federal government better connect with underserved individuals.

As people become aware of the benefits they're entitled to, they might be encouraged to explore their personal accounts with the CRA or Service Canada to learn about other government programs available to them, he said.

A move toward automatic filing would pose a threat to the tax preparation industry, which relies on people needing to proactively file their taxes. But Robson said some people may still want to seek professional help.

"There's going to be some continuing need for those services in the sense that there will be people who have complicated tax situations who need the advice of professionals and advisors," Robson said.

But how long will it take for automatic filing to be a reality?

Robson said it'll depend on both the CRA's administrative capacity as well as the federal government's political will.

The federal budget also said the Canada Revenue Agency will expand access to a service set up in 2018 that allows some Canadians with lower or fixed incomes to auto-file simple returns over the telephone.

The budget says that two million Canadians will be eligible for that service, called "File My Return," by 2025, which is nearly three times the number of people who can use it now.

This report by The Canadian Press was first published March 30, 2023.

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