October 27, 2024
Summary: In our most recent article on the CVITP’s coverage of the impoverished in Canada, we concluded that the CVITP remains a very effective program for helping those on low and modest incomes to file their income tax and benefit returns, thereby getting the benefits to which they are entitled. We also noted that the Canada Revenue Agency (CRA) should redouble its efforts to expand the CVITP given that most Canadian residents living in poverty still do not benefit from this free service.
Yet we noted that post-pandemic, the CRA appears to have scaled back its ambitions for the CVITP. The CRA no longer sets any targets for reaching more clients. Presently, it is unclear what its goals for and commitments are to this program.
Instead, the CRA seems to focus its efforts on reaching Canadian residents on low and modest incomes through three other initiatives: non-filers benefits letter initiative, SimpleFile by Phone and the piloting of automatic tax filing.
In a series of three articles, we show why these three initiatives presently show less promise than the CVITP in tackling the fundamental problem of helping a greater percentage of Canada’s impoverished residents access the benefits to which they are entitled.
In the first article, we looked at the CRA’s non-filers benefits letter initiative. We argued that the results are insignificant, even questionable and bear no comparison with those obtained by the CVITP when it comes to assisting those living in poverty.
In the second article, we looked at SimpleFile by Phone, the CRA’s automated phone service for filing returns which has operated since 2018 under a different name, File My Return. We concluded that the results are insignificant, especially when compared with those produced by the CVITP. It is also far less cost efficient in producing results than the CVITP. Furthermore, we showed why the service does not live up to its stated promise of helping Canadians who have not filed in the past to access their benefits.
In this third article, we look at the CRA’s long awaited pilot for automatic tax filing which was launched in July 2024. We show that, unlike its billing, filing a return under this new method is not automatic, the process is not “simple” to complete, this method will not reach non-filers as originally intended, and the launch of the pilot is not well timed so is likely to perform poorly.
As many readers will already know, filing an income tax and benefit return is a necessary step toward getting and maintaining access to many federal and provincial income-tested benefits. The CVITP is a Canada Revenue Agency (CRA) administered service offered free to Canadian residents on low and modest incomes. Volunteers working within community-based organizations assist these residents in preparing and filing their income tax and benefit returns.
In our most recent article on the CVITP’s coverage of the impoverished in Canada, we noted that by 2023 the CVITP’s performance had largely rebounded from the large decline in service during COVID, that the CVTIP remains a very effective way of reaching those living in poverty at a relatively low cost and that there is no evidence to suggest the CVITP has reached the limits of its effectiveness. Given that most Canadian residents living in poverty still do not benefit from this free service, we concluded that the CRA should redouble its efforts to significantly expand the CVITP.
Yet we noted that post-pandemic, the CRA appears to have scaled back its ambitions for the CVITP. The CRA no longer sets any targets for reaching more clients. Presently, it is unclear what its goals for and commitments are to this program.
Instead, the CRA seems to focus its efforts on reaching Canadian residents on low and modest incomes through three other initiatives: non-filers benefits letter initiative, SimpleFile by Phone (formerly File My Return) and the piloting of automatic tax filing.
In a series of three articles, we show why these three initiatives presently show less promise than the CVITP in tackling the fundamental problem of helping a greater percentage of Canada’s impoverished residents access the benefits to which they are entitled.
In the first article, we looked at the CRA’s non-filers benefits letter initiative. We argued that the results are insignificant, even questionable and bear no comparison with those obtained by the CVITP when it comes to assisting those living in poverty.
In the second article, we looked at SimpleFile by Phone, the CRA’s automated phone service for filing returns which has operated since 2018 under a different name, File My Return. We concluded that the results are insignificant, especially when compared with those produced by the CVITP. It is also far less cost efficient in producing results than the CVITP. Furthermore, we showed why the service does not live up to its stated promise of helping Canadians who have not filed in the past to access their benefits.
In this third article, we look at the CRA’s long awaited pilot for automatic tax filing which was launched in July 2024. We show that, unlike its billing, filing a return under this new method is not automatic, the process is not “simple” to complete, this new method will not reach non-filers as originally intended, and the launch of the pilot is not well timed so is likely to perform poorly.
A bit of recent history
Various statements emanating from the federal government reveal its intent in introducing automatic tax filing. As there have been media reports in recent years that this was coming soon, many Canadians may have erroneously concluded that they will soon see their own tax returns prepared and filed automatically.
In the September 23rd, 2020 Speech from the Throne outlining the Liberal government’s priorities up until the next federal election, the Governor General of Canada stated that “The Government will also work to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.”
This was reaffirmed in the Minister of National Revenue’s Supplementary Mandate Letter of January 15th, 2021: “[The Minister shall] Work 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.”[i]
However, the federal government’s budget documents for 2021 and 2022 were silent on this priority.
Then Budget 2023 stated:
“…that, starting next year, the CRA 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.”
Budget 2024 gave more details:
“In February 2024, the Canada Revenue Agency (CRA) increased the number of eligible Canadians for SimpleFile by Phone (formerly File My Return) to 1.5 million people, more than double the number of people eligible last year. The CRA is on track to increase this number to two million by 2025. In summer 2024, the CRA will pilot new automatic filing services, SimpleFile Digital and SimpleFile by Paper, to help more Canadians who do not currently file their taxes receive their benefits.”
The 2024 budget document even included an illustrative example:
“Johnny lives in Manitoba and has never filed a tax return, and as a result is missing out on benefits such as the GST Credit, Canada Carbon Rebate, provincial rent credits, and possibly others that help make life more affordable.
“Johnny’s primary source of income is social assistance, which means he may be invited to participate in the SimpleFile pilot. Johnny would not have to fill out complex forms. The CRA would use the information it has on hand for him and his responses to a series of short simple questions, including information on his rent payments which the CRA does not otherwise have, to complete and file his tax return, thereby unlocking the government support to which he is entitled.”
In summary, from the outset the government intended automatic tax filing to target vulnerable Canadians who do not currently file their income tax and benefit returns so they can receive the benefits to which they are entitled.
What is SimpleFile?
How will automatic tax filing likely work? We can get a glimpse of this as the Canada Revenue Agency (CRA) launched a pilot in July 2024.
The pilot allows for three options for automatic tax filing. To be eligible, one must have a low income. Eligible Canadian residents will receive a letter, inviting them to file their 2023 income tax and benefit return using SimpleFile. The invitation will specify which of the three SimpleFile options the recipient can use and will include instructions on its use.
SimpleFile by Phone
This service has operated since 2018 under a different name, File My Return. In 2024, it was rebranded with this new name and has been offered since the start of the 2024 tax season. To date, approximately 2 million letters have been sent, inviting eligible Canadian residents to use this option to file their 2023 return. In our last article, we wrote extensively about this service.
SimpleFile Digital
As the name implies, this option allows eligible individuals to file their 2023 return online. As with the phone option, users are required to provide some personal information, usually confirming their identity. Whereas the phone option is estimated to take 5-10 minutes to complete, this option is estimated to take 10-20 minutes.
SimpleFile by Paper
This option sounds very similar to one which is available to all Indigenous communities. It allows eligible individuals to file their 2023 return through the regular mail. It is estimated that this option takes approximately 25 minutes or less to complete. Like the other two options, the user will need to confirm some personal information. However, unlike the other two options, the user is not expected to answer any other questions, only confirm information the CRA provides about their income. Additionally, one does not need to have income or to have filed returns in prior years to use this option. One is also eligible to use this option if one has received tax exempt income.
The CRA does not presently provide any timeline for reporting on the outcome of this pilot. It says only that “the pilot is expected to continue into 2025 and beyond.” However, Budget 2024 states that ‘’The CRA will engage leading experts and industry to identify further opportunities to help more Canadians receive the benefits designed to support them. CRA will provide an update on this work in fall 2024.’’
Four problems with SimpleFile
1. It’s not automatic
As the descriptions of the three options suggest, this is a far cry from what one would expect for a service referred to as “automatic”[ii]. We previously highlighted this problem when we first wrote about the federal government’s announcement four years ago:
“In the income tax and benefit return process, no one wants to discover they have absolutely no say over how much tax they owe or benefits they are entitled to. In even the most automated tax filing systems, there is always one step which is not automatic: an individual receives their pre-populated return, and they are required to indicate if they agree with the results and if not, why not, before it is filed. Tax authorities insist on this, at the very least, to ensure the individual confirms there are no sources of taxable income that have been left out of the pre-populated return.”
Taxpayer consent is mandatory before the CRA can produce a notice of assessment. This first challenge is common to many tax authorities around the world.
However, the Canadian tax system suffers from a second challenge that is less common, but which also explains why the CRA cannot automatically produce and file a completed return on behalf of the individual. The CRA has most people’s income information (found in the various T slips). But it does not have any information on self-employed income, other information clients can use to claim various federal and provincial credits for which they may be eligible nor any changes to the taxpayer’s family situation and composition which are used to determine eligibility and payment amounts for various benefits. The only way it can get this information is by asking the taxpayer to provide it.
2. It’s not simple
As suggested above, some of the complexity arises from the way the Canadian tax system is designed, with various optional credits which clients must understand well enough to know whether they are eligible to claim.
But while the CRA gives eligible users instructions on the process for completing the return, the invitation letter for SimpleFile by Phone demonstrates how the CRA has added to the complexity. As noted in our recent article on this service, letter recipients need high school level reading skills in one of the official languages and a basic understanding of tax-related concepts (e.g. net income) in order to understand the written instructions. Many low-income residents lack the requisite reading skills for various reasons, including a limited education, disabilities of various kinds or their mother tongue being neither official language.
Recipients of the letter inviting them to use SimpleFile Digital need access to a computer and the internet as well as some familiarity with the way computers are used. Many low-income non-filers lack the access and skills to take advantage of this option.
For security reasons, the CRA’s client identification process also requires information which clients often find it difficult to provide. For example, the CRA frequently asks clients to provide information on a prior year’s Notice of Assessment as one way of confirming their identity. Yet many clients do not keep good paper records and thus find it impossible to give the information essential to completing the client identification process.
3. It will not reach non-filers
As noted above, the rationale the government has given for promoting automatic tax filing is that it will allow vulnerable Canadians who do not currently file their income tax and benefit returns to receive the benefits to which they are entitled. This means people who have never filed a return (what we have called chronic non-filers) or who have a gap in their filing history (what we have called recent non-filers). Given the way the pilot is designed, the CRA is unlikely to reach many non-filers, especially chronic non-filers. At best, it will reach recent non-filers who have not changed their mailing address.
We have frequently highlighted this problem. See, for example, this article. In summary, there are at least two reasons:
- Eligibility criteria presuppose previous filing of returns: The eligibility criteria for being invited to use SimpleFile by Phone (and possibly SimpleFile Digital), includes a simple tax situation which does not change from year to year. The CRA can only confirm this by reviewing the client’s previous returns. Thus, invitations are being sent to clients who have previously filed using other methods, and not specifically to non-filers.
- CRA communication with clients needs an up-to-date address: The CRA presently has two means of communicating with clients. One method, electronically through email associated with the CRA My Account, assumes that the filer has access to a computer and an internet connection. The second method, by regular mail, assumes the filer has a permanent address (and, when they move, has registered with the post office for mail to be forwarded to their new address). Both these methods of communication are well designed to connect with many middle and high-income people. But less so for many low-income people. Many low-income individuals may have a smartphone, but far fewer have access to an internet-linked computer and are familiar enough with computers to set up a CRA My Account. Some low-income people move around a lot without informing the post office of their address change or, in some cases, have no fixed address. This is especially true of individuals who have not filed a return in many years. This means that the CRA will have difficulty communicating with these individuals.
4. It’s not well timed
It is unclear how SimpleFile by Phone respondents play into this pilot. The CRA reported it had sent out 1.5 million letters in February 2024 inviting people to use SimpleFile by Phone.
The SimpleFile pilot was launched in July 2024. It invites letter recipients to file their 2023 income tax and benefit return using one of the three options. As part of the pilot, a further 500,000 letters were sent inviting people to use the SimpleFile by Phone option. (The CRA has not yet indicated how many additional letters were sent inviting people to use the other two options as part of the pilot.)
From what we have seen, the SimpleFile by Phone invitation letters sent out in July are no different from the ones sent out earlier in the year. This leads to two conclusions.
First, it means there are a substantial number of people who did not file their return before July. This is not at all unusual. For many reasons, previous filers do not file their returns in the peak tax filing season of March and April. As benefits get cut off in July for those who haven’t filed their most recent return, this often serves as a wake-up call that they should file.
But to be clear, these letters are being sent out to residents who have previously filed and the gap in their non-filing history is usually small. So, they serve more of a role in reminding residents that they should file their most recent return.
Second, it means that the response rate is unlikely to be any different from that seen for the letters sent earlier in the year. As we already reported, the response rate has been very low. (In fact, it is unclear if the number of filings using SimpleFile by Phone reported by the CRA on its website includes or excludes responses to the SimpleFile by Phone letters sent as part of the pilot which started in July.)
If the CRA wanted to test the accessibility of the SimpleFile service, it should have opened usage of the three options much earlier in the year. Most CVITP clinics operate only in the March-April period. At that time, the CRA could have worked closely with the host organizations and the volunteers in its CVITP network, providing them with the information needed to help those of their clients who received invitations to participate in this pilot.
Creating the conditions for success
This may sound counterproductive. After all, isn’t the whole purpose of introducing SimpleFile intended to make it easy for clients to file a return, ruling out the need for any intermediary? Yet a trusted intermediary may be needed in the early stages of introducing the SimpleFile service, to facilitate uptake.
As we note in our article on SimpleFile by Phone (formerly File My Return), the CRA has been sending out invitations to use this automated phone service since 2018. However, usage rates for this service have remained consistently low. This suggests that uptake will not come without additional measures being taken.
CVITP clients have been regularly targeted by the CRA to receive invitations to use SimpleFile by Phone. Yet many of these invitation recipients still prefer to come back year after year to get their return prepared at CVITP clinics rather than use the SimpleFile by Phone service. This suggests they have greater trust in their CVITP host organization and volunteer.
Building on this trust, the CVITP network could be a useful ally in helping the CRA to iron out wrinkles in the SimpleFile process. This could facilitate uptake in the use of SimpleFile among those CVITP clients with a simple tax situation which does not change from year to year.
As we have previously written, the CVITP could also be the vehicle for reaching chronic non-filers, those who are least likely to participate in the pilot for the reasons identified above. This would be a very effective way of increasing the access of previous non-filers to the benefits to which they are entitled – whether through an imperfect automatic filing process or through more traditional CVITP clinics.
[i] The most recent mandate letter, dated December 16, 2021, does not include any further reference to this priority.
[ii] The official translation into French of “automatic tax filing” (production automatisée de declarations) uses the word for “automated”, not “automatic”. This may be more accurate but strays significantly from the main intent as the production of returns is already heavily automated.