Imagine if your tax return arrived in the mail, already filled out by the tax authorities. You could make adjustments to it as needed. But otherwise, everything would be done automatically. And for free.
An impossible dream? Far from there. It works exactly like that in Finland, a pioneering country in this area, and in about 30 states where tax season is virtually on autopilot.
In Canada, unfortunately, the operation remains a way of the cross. This results in 12% of Canadians not filing their returns, thinking that their income is not high enough to pay taxes anyway.
Big mistake!
By doing so, they are depriving themselves of a host of benefits and tax assistance measures valued at $1.7 billion per year1. The saddest thing is that it is often the less well-off and more vulnerable people – students, seniors, single-parent families – who miss out on the precious help to which they are entitled.
The sums lost can be colossal. For example, a mother earning $45,000 a year who lives alone with two young children would lose nearly $19,000 in child allowances from Quebec and Ottawa by forgetting to file her income tax return.
It’s not nothing.
In the 2020 Speech from the Throne, the Trudeau government pledged to implement an automated tax filing system to ensure that all citizens receive their due.
So far, progress has been timid. But in its March budget, Ottawa announced the trial of a new automatic production service for the most vulnerable, a system that could then be expanded.
Ditto in Quebec which will offer from the 2023 tax year a pre-filled declaration service to individuals with a simple tax profile. This pilot project could then be extended.
Let’s hope so. Because do we have to remember that we are in 2023? Gone are the days when taxpayers kept their receipts in a shoebox. In many cases, governments already have the information needed to file personal income tax returns.
The proof is that tax software already has a function to automatically download tax information held by the government: employment income, investments, etc.
So there is not much missing to truly automate the tax return.
Right now, about a third of families have a simple enough tax situation that the tax authorities can automatically fill out their returns with the information they have, according to an assessment by the CD Howe Institute.2.
This percentage could increase if the government asks various organizations to send tax information directly to it on charitable donations or tuition fees, for example. Not only would this make life easier for taxpayers, but it would also prevent oversights on their part.
Some will say that our tax system is too complex to automate the declaration of all taxpayers. Two answers can be given to this.
First, nothing would prevent the tax authorities from providing a pre-filled declaration to taxpayers who could then add the more specific tax measures to which they are entitled, such as medical expenses, rental or self-employment income.
Second, it is time for governments to clean up the long list of credits and deductions that only grows longer with election promises.
In 2015, the Tax Review Commission, mandated by Quebec, had identified some thirty measures to be eliminated… such as the tax holiday for sailors which concerns only a handful of taxpayers, but which increases the tax return by millions of Quebecers.
Eight years later, we are still waiting for a big sweep.
The unnecessary complexity of our tax system comes at a huge cost.
Already 10 years ago, the Fraser Institute estimated that Canadians spent up to $6 billion every year to file their tax returns.3. The bill is certainly much higher today.
Without help, taxpayers are struggling to navigate, especially since the quality of service provided by Canada Revenue Agency contact centers has been a major source of complaints for years, according to the latest report Annual Taxpayers’ Ombudsman.
Contradictory or inconsistent information, calls interrupted prematurely… And things are unlikely to improve with the looming strike by federal civil servants.
True, there are dedicated volunteers to help poor taxpayers find their way around. But it is not normal for the burden of our overly complex tax system to fall heavily on the community sector, which is scratching the bottoms of drawers itself.
Why not follow Finland’s example with a pre-filled declaration? The political intention is there. Technology allows it. We must step on the accelerator to simplify the lives of taxpayers and ensure that everyone receives their due.