CRA to Introduce New Automatic Tax Filing System as Many Canadians Miss Out on Benefits

The Canada Revenue Agency (CRA) is set to pilot a new automatic tax filing system in 2024.

The move toward automatic tax filing, first promised in the 2020 speech from the throne, is one of the several budget measures the Liberals say are meant to help Canadians with the cost of living. Automatic tax filing is already a reality in many other countries, including the United Kingdom, Germany, Japan, and New Zealand.

This new pilot program was announced in the federal government’s 2023 to 2024 fiscal budget on March 28, 2023, as part of its goal to “Making Life More Affordable”  for Canadians.

This wouldn’t be the first automatic filing system made available. The CRA has provided a free tax filing service called File My Return since 2018. It allows eligible Canadian to auto-file tax returns over the phone after answering some questions.

The 2023 budget also announced that the Federal Government will increase the number of eligible Canadians for the “File My Return” service to two million by 2025, which is almost triple the current number.

Canadians are generally not required to file tax returns every year unless they owe money, but the federal government is increasingly relying on the Canada Revenue Agency to deliver income-tested benefits to individuals. This includes Canada Housing Benefit, Canada Child Benefit, the Canada Workers Benefit, Carbon Tax Rebate and the temporary doubling of the GST tax credit.

A 2020 report co-authored by Jennifer Robson, an associate professor in political management at Carleton University, estimates that 10 to 12 per cent of Canadians don’t file their taxes. Although there were non-filers across all income groups, they were most heavily concentrated in lower income brackets. The report estimated the value of benefits lost to working-age non-filers was $1.7 billion in 2015.

Another research from Prosper Canada, published in year of 2018, suggests as many as 40 per cent of eligible First Nations Families aren’t collecting the Canada Child Benefits (CCB) – a monthly cheque paid to people with kids who fall below a certain income bracket.

Beyond getting benefits to people, the new automatic tax filing system might also help the federal government better connect with underserved individuals.

How will this new Automatic Tax Filing system work:

Taxpayers who wish to use this Auto-fill my return service need to be registered for My Account and should use NETFILE-certified software. When a taxpayer is ready to use Auto-fill my return, their NETFILE-certified software will prompt them to enter their My Account user ID and password. The Taxpayers then will need to follow the steps provided in the software they are using. Once the Auto-fill my return has populated their tax return with the necessary information, the taxpayers will need to make sure that all the proper fields on the tax return are filed and that the information provided is true, accurate and complete before the taxpayers file their returns.

Individuals can also use Auto-fill my return on behalf of a family member. If they prepare a tax return for a family member or a friend, they will need to:

1. Be authorized by their family member or friend to use Auto-fill my return on their behalf. They will need a RepID, which the individuals can obtain through the Represent a Client The RepID identifies the individuals with the CRA.
2. The individuals can also give their RepID to their family member or friend so they can authorize them as their representative through their My Account.
3. Once the individual is authorized, they can use Auto-fill my return to access the information of the Taxpayer and file their tax return.

Will this new Automatic Tax Filing System of CRA have any negative impact:

A move toward automatic filing would pose a threat to the tax preparation industry, which relies on people needing to file their taxes proactively. Tax filing and tax software groups have been actively discouraging the CRA and its U.S. equivalent, the Internal Revenue Service (IRS) from implementing automatic returns for fear it could put a dent in profits.

Pro Tax Tips From an Expert Canadian Tax Lawyer for Canadian Taxpayers with complicated tax returns:

Although this new Automatic Tax Filing Software of CRA will be helpful to many Canadian Taxpayers, however, some people who have complicated tax situations will still want to seek professional help from an expert Canadian Tax Lawyer. However, taxpayers with simple tax returns should find this new service to be of benefit and to provide a cost savings in tax preparation fees.

FAQ:

How long will it take for automatic filing to be a reality?

It depends on both the CRA’s administrative capacity as well as federal government’s political will.  CRA has said it should be available in 2024.

How can a taxpayer authorize their family member or friend to prepare a tax return for themselves?

The taxpayers can use the new My Trust Account Portal for representatives. Please visit Authorize or cancel a representative.

I have not filed my previous tax returns. Can I use this software to file my previous years tax returns?

Yes, a Taxpayer can file his tax returns using Auto-fill my return for the current tax filing year plus the previous six tax years.  However if you have a tax debt for previous years you should only file your tax returns under protection of the Voluntary Disclosure Program (VDP) in order to avoid penalties and interest.

Disclaimer

This article provides information of a general nature only. It is only current at the posting date. It is not updated, and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a Canadian Tax Lawyer.