Automated Tax Filings
In the 2023 budget announced on March 28th, one small thing may have slipped past most people. Starting in 2024, CRA will begin piloting automated tax filing services, free of charge, to ensure that the most vulnerable Canadians still receive their benefits.
Don’t get too excited about this idea just yet; a few key considerations need to be taken into account.
The History of Automated Tax Filing
Automated tax filing is not a new idea. It has been on the radar of those of us who are at the front of technology for accounting and tax for several years. It was mentioned in a speech from the throne in 2022 and was on our radar even earlier.
Is This for Me?
When asking yourself whether or not this will apply to your situation, you need to understand your situation and whether or not the government’s system will work well for you – or will cause you to pay more tax than you deserve.
The CRA receives tax slips from employers and financial institutions and posts them on CRA My Account. (If you haven’t registered, take a break from this article and go register!) As tax preparation professionals, we access your account through CRA Rep a Client. However, CRA does not receive ALL the information that may be included in your tax return.
What to Think About
If any of the following situations apply to you, you’ll probably still need to file your own taxes:
- Child Care Expenses
- Medical Expenses
- Charitable and Political Donations
- Tax Optimization opportunities
- Significant or unusual investments
- Real Estate Transactions
- Special situations
If there is anything about your situation that doesn’t appear on a standardized slip that CRA receives, you must file your taxes the normal route or pay more tax than you deserve.
In our discussions with peers and our reading on the subject, we make a lot of assumptions, and it wouldn’t be fair to give our opinion without discussing some of the assumptions behind it.
We are assuming the following:
- This is intended for people who don’t regularly file their taxes and, as a result, end up having their social benefits suspended. Primarily, this will be lower-income individuals with special circumstances. Research has supported this (see the CTV article linked above).
- The government will prefill the tax return with what they have, and if you want to claim anything differently, you’ll have to go through the tax return process as it exists today.
- The government will earn more revenue by attrition as people will not claim the deductions they are entitled to since the tax return was prepared for them.
- The CRA will still charge interest on taxes that have been refunded but become repayable because a slip is amended or received late.
- This program won’t roll out in a meaningful way for several years
Barriers to Entry
A big part of the problem is barriers to entry. To receive social benefits, you need a permanent address, a bank account, a phone number, and sometimes an internet connection. The Canadians this is geared toward serving will either end up paying more tax (getting less of a refund) than they deserve or will have difficulty accessing and using the program.
There are volunteer tax clinics and File My Return, a free CRA service, both geared toward low income individuals. Right now, fewer people use these services than ought to. By 2025, 2 million Canadians will be eligible for File My Return (see the same CTV article).
Announcements like this can seem fantastic. You’re going to do my taxes for me for free!
Well, they are conditional.
This program won’t apply to everyone and will result in the most vulnerable people paying more than their fair share of taxes. Conversely, at least those who qualify will continue to receive their benefits.