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It’s time for the CRA to implement an automatic tax-filing system


Kim Moody: People with straight-forward income shouldn’t have to pay much, if anything, to annually prepare tax returns

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The tax preparation industry in Canada, like many countries, is big business, bringing in about $23.6 billion, according to some estimates. Not all of that is to prepare personal income tax returns, but it would certainly make up a significant chunk of that estimate.

How much of that revenue is generated from most Canadians who have straight-forward income and not that much complexity? I’m not sure, but, ultimately, it would be preferable for people in such straight-forward situations to not pay much, if anything, to annually prepare their returns.

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For example, if a person has a T4 slip for employment income, perhaps a little investment income reported on T5 slips and maybe a contribution receipt for a registered retirement saving plan (RRSP) contribution, does it make sense to pay $150 or more to prepare their tax return (yes, there are some preparers who will do it for less)?

In my opinion, no. People can ultimately do it on their own, but preparing a tax return can be intimidating, and purchasing software to assist you can also be relatively expensive compared to the complexity.

Some countries, such as the United Kingdom and New Zealand, have had automatic tax-filing systems in place for years. In the U.K., many wage earners are not even required to file a tax return because the proper amounts of tax are withheld. However, if a person in the U.K. doesn’t meet the requirements, they are required to file a return.  New Zealand’s system is similar.

Canada has had a rudimentary self-filing system for years. The Canada Revenue Agency’s Auto-fill program can be helpful to see the income that the agency already has a record of. Canada also has a SimpleFile by Phone automated service that is available for lower-income and non-tax-complex Canadians who can file their returns by using their phone’s keypad to answer some basic questions.

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Given that many of our country’s tax credits and entitlements are income sensitive and require a tax filing to substantiate income, it is usually important for all Canadians to file tax returns. However, for many, it is not easy and, more often, simply intimidating. Not good.

In the 2023 federal budget, the government announced it “… will pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the CRA will present a plan in 2024 to expand this service even further.”

No further details were presented in that budget and if there has been further consultation and/or updates then it is news to me. It’s fair to say most of the Canadian tax community would encourage the government to get this initiative across the goal line.

It’s a shame that many lower-income Canadians have to pay tax preparers expensive fees to get their returns done — some simply don’t, as a result — especially since the government has all the information and can follow the lead of other countries such as the U.K.

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Strong and forward-thinking technology has long not been a strong suit of the Canadian government, but it’s well past time for automatic tax filing to occur. Accordingly, I’ll be eagerly awaiting an update and details in the upcoming 2024 federal budget, which has yet to be announced.

Speaking of tax preparers, Canada has an unregulated system. In other words, anyone can open such a business whether they have tax expertise or not. And, believe me, there are many such shops in existence.

Tax is complex and intimidating, so to have an unregulated system has always surprised me. For example, medicine is regulated. Law is, too. Engineering and many other complex areas are as well. So, why not the tax industry in order to protect the public and ensure the CRA is receiving better-prepared returns?

The government in 2014 released a consultation paper, Proposal – Registration of Tax Preparers Program (RTPP), which laid out some basic thoughts on what a registration program could look like and briefly compared the systems in the United States, U.K. and Australia.

Some thought the paper was quite controversial, but I always generally supported the program since good tax compliance should be accompanied by good education and minimum standards for those who charge a fee to the public.

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Ultimately, the CRA in 2017 announced it was abandoning the program, largely, it appears, because of the cost concerns to implement it.

In light of the pending automatic tax-filing initiatives discussed above, it would be a good time to revisit the RTPP proposal. The two initiatives are obviously distinct, but there is also some overlap in that people who prepare tax returns — for lower-income Canadians in particular — should meet basic and approved minimum education standards.

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Most are not able to judge such preparers’ expertise and until a seamless, automatic tax-filing system is in place for the vast majority, Canadians should be able to assess their preparers’ experience in some official way. And the government should be able to pull the preparer’s “licence” if it is found their error rate is beyond an acceptable standard.

Automatic filing and minimum registration requirements for preparers are long overdue. I look forward to progress in this area for the benefit of Canada as a whole.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.


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