Funny time, I know, to talk about the tax return, even if the self-employed have to submit it by June 15. For employees and retirees, the file has been classified for weeks. The tax refund is spent or invested, the H&R Block bill is forgotten. It’s time for holidays and BBQs.
But on Friday, a new study told us that Ottawa could easily produce the tax returns of a third of the families, since all the necessary information is already in its possession. In the case of people receiving social assistance, the proportion is much higher: this beneficial service could be offered to 67% of households.
This is the conclusion of the Research Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke, which calculated the number of households producing a declaration qualified as “simple”. Taxpayers who claim the credit for medical expenses or for charitable donations, those who declare self-employment income or alimony, for example, do not fall into this category.
The idea is not new. In about thirty countries (Denmark, Sweden, Norway, Spain), most citizens do not have to submit an income tax return. The document is automatically produced by the State. It is then sufficient to verify the accuracy of the information it contains and to correct it if necessary.
This way of doing things is advantageous in many ways. It reduces the administrative burden for households for whom the process is intimidating (illiteracy, lack of financial literacy) and too costly, increases the number of declarations filed and improves access to various assistance programs.
“Doing your taxes is complicated, it’s stressful, and errors have serious consequences,” recalls the author of the study and doctoral candidate at Carlton University, Antoine Genest-Grégoire.
Do not think that the proportion of Canadians who do not file a return is tiny. It is estimated at 12%.
In doing so, these people forego a series of public benefits and programs such as the GST/HST credit and the Canada child benefit. On July 5, households will also miss out on the “grocery rebate” announced in the last federal budget. The notice of assessment is then used to certify his income to be entitled to housing subsidies, for example.
The filing of tax returns by the tax authorities therefore provides undeniable advantages, particularly for the less well-off, who are the most numerous not to do the exercise. For Antoine Genest-Grégoire, there is no doubt that “non-declaration is a problem if you are concerned about the social safety net”.
According to the CD Howe Institute, which has also studied the subject1 last year, “about 4.2% of potential taxpayers – more than a million people – do not participate in the tax system, when they probably should”. It may not seem like much, but you have to remember that millions of other people have to waste time and money filing a return. Either to buy tax software and do the work, or to find someone to entrust the task to in a context where many professionals no longer take on clients.
However, it would not be very complicated to imitate other States, because the CRA is already informed of what we have received in salary, benefits, pension and interest.
This information is transmitted to him by employers, by banks, and by the government itself. Moreover, tax software is able to retrieve this data.
To include a greater number of families, the sums paid in donations and the tuition fees paid could be passed on to the tax authorities. “Collecting information from new third parties or putting in place other administrative procedures could substantially increase the number of returns that the CRA could produce,” argues the CFFP.
Not everyone could benefit from such a state service, of course. Because the CRA is not able to know how much money you have spent on the dentist and the physiotherapist in the last year. Ditto for self-employment income and the expenses incurred to earn it.
“How much it costs you in wax to make candles, the ARC cannot know that, concedes Antoine Genest-Grégoire. No one but you can do these calculations. Anyway, as a general rule, those with complex declarations can afford to pay an accountant.
But there is a way to do much better.
Ottawa had pledged in 2020 to implement an automated system, a promise repeated in the Freeland budget last March. At the moment, invitations are sent to nearly one million low-income people to offer them a telephone reporting service. But in 2022, only 52,713 took advantage. We have to change strategy.
On the Quebec side, we promised in March to send “a limited number of individuals” a pre-filled declaration (2023 taxes) as part of a pilot project. The CFFP also assumes that the results of its study are “probably transposed to Quebec”.
In the age of artificial intelligence, it’s time we found a way to ease the burden of tax season.