Automatic Tax Filing Could See Feds Paying Canadians $8.5 Billion in Unclaimed Benefits Over Five Years: PBO

Parliamentary Budget Officer Yves Giroux prepares to appear before the Senate Committee on Official Languages in Ottawa on June 13, 2022. The Canadian Press/Justin Tang

An automatic income tax filing service being piloted this year could see Ottawa paying over $8.5 billion in unclaimed government benefits to lower-income individuals over the first five years, a report by the Parliamentary Budget Officer (PBO) estimates.

The PBO analysis, published June 13, is based on assumptions about an automatic tax filing service provided by the Canada Revenue Agency (CRA) that would complete the tax returns for people who didn’t file in a given tax year and for whom the agency has enough information in its records to do so.

The fiscal watchdog estimated that if the CRA deploys the service this year, the amount of additional government benefits that could be paid to non-filers through the service could range from $1.6 billion in the 2024–25 fiscal year to $1.8 billion in 2028–29.

The estimate covers the Canada Child Benefit, Canada Workers Benefit, and Goods and Services Tax/Harmonized Sales Tax credit, benefits that individuals must file a tax return to receive.

In addition, the administrative cost of implementing and running the system would cost the Ottawa an estimated $57 million in 2024–25, rising to $65 million in 2028–29, the PBO report said.

The benefits payouts plus the administrative costs would bring the system’s total cost to nearly $9 billion over the five-year period.

The proposal was first mentioned in the September 2020 throne speech, which said Ottawa will “work to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.”

The PBO report cited a study by two Carleton University professors in the same year which found that approximately 10–12 percent of Canadians do not file a tax return annually and thus don’t receive the benefits they would otherwise be eligible for. “Low income is clearly related to the likelihood of not filing,” the professors wrote.

Invitations Going Out This Summer

The CRA has since 2018 offered an automated service that allows low-income Canadians to file their tax return by phone by answering a few questions. In Budget 2023, Ottawa announced it would increase the number of Canadians eligible for this SimpleFile by Phone service to two million by 2025. The budget also said that, starting in 2024, the CRA will pilot an automated tax filing system to increase its ability to deliver government benefits to those who don’t file.

The CRA has also committed to holding consultations with experts and community groups and providing an update in fall 2024 on development of the project’s next phase, the PBO report said.

In early May, the CRA confirmed it will pilot automatic filing services targeting lower-income individuals who have either never filed or have a gap in their filing history. The agency said it will be sending invitations to Canadians starting this summer.

The PBO report said automatic tax filing would also increase the number of non-filing households receiving the Canada Carbon Rebate (CCR) in those provinces where 93 percent of federal fuel charge proceeds collected are returned to households through the CCR. These include all provinces except Quebec and British Columbia.

The watchdog said the increase in CCR recipients wouldn’t result in a net cost to the government but “could slightly reduce the amount received by each household since more households would share the same envelope.”

‘Limitations’

There are “limitations” to the analysis, the report said, as “significant uncertainty” remains regarding the number of returns the CRA could complete independently as well as the eligibility criteria for non-filers to have their return automatically processed.

“The aggregate nature of the data used for this analysis inherently limits the precision of estimated benefit amounts to which non-filers may be entitled,” analysts wrote.

Moreover, they said “many assumptions” used to produce the estimates were based on data from the 2020 tax year, during the COVID-19 pandemic, whereas earnings and filing patterns during this period may differ from what could be expected over the projection period from 2024–25 to 2028–29.

As for the expansion of CRA’s SimpleFile by Phone service, the PBO said this would cost about $1 million in fiscal 2024–25 and another $1 million in 2025–26.

The CRA says it sent out invitations to Canadians in February as part of this expansion.

“The number of invitations increased from 700,000 in 2023 to more than 1.5 million lower-income Canadians this year,” the tax agency said on May 9, noting that “the number of invitations is expected to increase to 2 million” for the 2025 individual tax filing season.