This article appears in the February 2021 issue of\u00a0<\/em>Investment Executive.\u00a0Subscribe to the print edition,<\/a>\u00a0<\/em>read the digital edition\u00a0<\/a><\/u><\/em>or\u00a0read the articles online<\/a>.<\/em><\/p>\n

Tax and financial planning experts are applauding a recent federal government proposal that would see the Canada Revenue Agency (CRA) automatically prepare tax returns for Canadian residents with simple tax situations.<\/p>\n

\u201cMost of the information that people provide on a tax return the CRA already has,\u201d said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management in Toronto. \u201cWhy should the average Canadian have to spend time and money hiring tax professionals to do their returns when the CRA [already] has the information?\u201d<\/p>\n

Alexandra Macqueen, a certified financial planner in Toronto, said she is \u201cstrongly in favour\u201d of automated tax filing.<\/p>\n

\u201c[It] doesn\u2019t need to mean that taxpayers are forced into the automated system,\u201d Macqueen said, \u201cbut it could mean that low-income seniors are more readily able to access the benefits designed specifically for them.\u201d<\/p>\n

Canadian residents must file a tax return in order to receive benefits such as old age security and the guaranteed income supplement, Macqueen noted.<\/p>\n

However, Aaron Wudrick, federal director of the Canadian Taxpayers Federation in Ottawa, argued that allowing the CRA to file returns is a conflict of interest for the agency. An individual taxpayer may want to consider ways to reduce their tax liability, while the CRA would have an opposing interest, Wudrick suggested.<\/p>\n

\u201cIt\u2019s right for people to wonder whether the CRA [is] going to give you more back or less [with automatic tax filing],\u201d Wudrick said. \u201cI think people assume it\u2019s going to be less.\u201d<\/p>\n

The Liberal government announced its intention to introduce automated tax filing in its throne speech in September 2020. In a supplementary mandate letter issued in January, the Prime Minister\u2019s Office directed Minister of National Revenue Diane Lebouthillier to \u201cwork with stakeholders and community organizations to continue to develop and implement free, automatic tax-filing services for simple returns to ensure Canadians receive the benefits they need.\u201d<\/p>\n

While the government has provided no details on how it defines \u201csimple\u201d tax returns or when or how the initiative would be rolled out, Golombek suggested the feds are interested in targeting low-income Canadians to be eligible for the service. \u201cIt would mostly be [aimed at] people living on government benefits,\u201d he said.<\/p>\n

In recent years, the Canadian government has introduced initiatives to help Canadians file returns, including funding tax-filing clinics and developing services such as Auto-fill My Return (which populates fields in tax-filing software with information the CRA already has) and File My Return (a telephone-based service for low-income tax filers).<\/p>\n

About three dozen countries have incorporated some form of automatic or \u201creturn-free\u201d filing into their tax regimes. However, various initiatives over the years to introduce automatic filing in the U.S. have been unsuccessful, with tax-preparation software providers playing a part in opposing them.<\/p>\n

Automated tax filing in Canada would be a significant step forward in making sure those residents most in need will receive benefits, said Elizabeth Mulholland, CEO of Prosper Canada, a Toronto-based charity dedicated to promoting economic empowerment among low- and modest-income earners.<\/p>\n

For low-income earners, a prefilled tax return may be a more attractive option than tax-filing assistance software that requires users to opt in for help, Mulholland suggested: \u201cYou\u2019re going to get a much higher participation rate.\u201d<\/p>\n

Wudrick said that while the government\u2019s proposal may be well-intentioned, the government\u2019s efforts would be better spent on improving the CRA\u2019s core services. \u201c[The tax system] shouldn\u2019t be so complicated that you require an automated tax filing,\u201d he said.<\/p>\n

An email to Investment Executive<\/em> from Tax-Filer Empowerment Canada (TFEC), an industry association representing Canadian tax-preparation software providers, stated the best way for the federal government to encourage non-filers to file is to continue to work with software providers under the Digital Service Collaboration Plan (DSCP).<\/p>\n

Under the DSCP, software providers commit to supporting the CRA\u2019s digital services by incorporating those services into tax-filing products and services. The agreement also indicates the CRA does not plan to develop its own tax-preparation software.<\/p>\n

The TFEC\u2019s email didn\u2019t state whether the association supports the government\u2019s proposal for automatic tax filing, but it did say that the partnership between the industry and the CRA has enabled the government \u201cto leverage industry\u2019s unparalleled experience, expertise and innovation track record\u201d to make filing easier and encourage more taxpayers to file.<\/p>\n

Golombek said he hopes an automatic tax-filing service eventually will be extended to more than just low-income taxpayers. He envisions a system in which taxpayers would be sent a prefilled form and be able to add additional information, such as medical expenses or charitable donations, or make corrections before signing and returning the form to the CRA.<\/p>\n

Automatic tax filing would mean less work for tax-return preparers, and \u201cmost accountants I know would welcome getting rid of the drudgery of tax-return preparation,\u201d Golombek said. Tax professionals, he suggested, could instead focus on providing advice to clients with more complex financial situations, \u201cadding enormous value instead of copying and pasting numbers.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

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