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Automatic tax filing could see Canadians get billions in unclaimed benefits: PBO

Rolling out an automatic tax filing system would mean Canadians receive more than a billion dollars each year in currently unclaimed benefits from not filing their tax returns, according to the federal fiscal watchdog.

The Parliamentary Budget Officer (PBO) published a report Thursday looking into the impact of automated tax filing from the Canada Revenue Agency.

First proposed in the Liberals’ 2023 federal budget, the CRA said last month it would start rolling out invitations to the service this summer. But the PBO notes that there has been no further indication about a timeline regarding when the agency would begin processing automatic tax returns.

The pilot program is expected to target low-income Canadians who have never filed a tax return before, or taxpayers who might have gaps in their filing histories. A 2020 report co-authored by Carleton University professors estimated that between 10 and 12 per cent of Canadians do not file their taxes. The CRA’s internal estimates peg that number closer to seven per cent.

The problem with not filing a tax return is that individuals may miss out on major tax credits and other benefits from the government.

The PBO said in its report released Thursday that Canadians would get more than $1.6 billion in benefits this fiscal year if the automated tax filing system were to roll out and include all eligible individuals. That rises to $1.9 billion at the end of the five-year horizon in fiscal 2028-29.

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Those figures represent the total amounts paid to Canadians in benefits such as the Canada Child Benefit, the Canada Workers Benefit and GST/HST tax credits, which require an individual to file a tax return to receive. It also assumes the CRA’s system hits all eligible non-filers for which it has sufficient information.

Automatic tax filing would also increase the number of Canadian households receiving the Canada Carbon Rebate in provinces other than British Columbia and Quebec. But the PBO notes that this wouldn’t add any net costs to the government. Rather, it could reduce the amount individual households receive from the rebate because more Canadians would be sharing in the single pool of funds.

The administrative costs to run the system would amount to $57 million in the first year of operation, according to the analysis.

The PBO said it is limited in its analysis. Without specifics about the program’s rollout, there’s no sure way to tell how many Canadians will be captured in the automatic tax filing scheme. It also said its report was based on aggregates, which makes it difficult to say how much an individual would benefit from filing an automatic tax return.

The CRA is also planning to expand its SimpleFile by Phone system, a program that involves CRA agents asking simple questions over the phone to end up with a refund estimate by the end of the call. Some 1.5 million invitations for this service were issued for this tax year, up from 700,000 the year earlier, with hopes to scale it up to two million invitations. The PBO pegs costs for expanding SimpleFile by Phone at $2 million over two years.

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