With another tax season in the books, some are raising concerns that the Canada Revenue Agency’s simplified tax filing system is too complicated to help the low-income individuals it is meant to serve. 

Since 2018, the CRA has operated a simplified tax filing system for eligible low-income Canadians, called SimpleFile by Phone. Those who help low-income individuals file taxes say the system is not helpful.

“Clients are not using it because they don’t find it simple,” said Jonathan Rothschild, who volunteers at several Ottawa tax clinics helping low-income individuals file their taxes. 

“And it requires information that they often don’t have themselves.”

Rothschild estimates he helps more than 200 people each year file their taxes. Most do not use SimpleFile, often because they do not understand the instructions or do not have the technology needed to complete the process, he says.

‘Innovation in tax filing’

Canadians must file tax returns to receive many financial benefits, such as the GST/HST credit or the Canada Child Benefit. 

Not everyone files tax returns. Some research estimates between 10 and 12 per cent of Canadians do not, although internal CRA research suggests this number is lower. 

Often, low-income individuals do not file tax returns because they do not pay taxes. As a result, they miss out on programs designed to help them. 

In response, the CRA developed SimpleFile by Phone. The service allows selected low-income individuals to file their tax return over the phone by answering a short list of questions. It takes about five to 10 minutes to complete, the agency’s website says.

“The [agency] is focused on innovation in tax filing and refining business processes to deliver services to taxpayers efficiently and effectively,” a CRA spokesperson told Canadian Affairs in an emailed statement.

The agency describes SimpleFile as an “easy” service to use. 

Rothschild says the people he helps at tax time would disagree. 

People who don’t speak English or French may struggle to read the six pages of SimpleFile instructions. People answer questions by punching in numbers on their phones.

Rothschild is concerned that no simplified system will be able to reach those in need. “They’re still going to need someone to help them prepare their return,” he said.

Many people Rothschild works with do not have phones. They may not have access to their social insurance number or know the exact way their name is listed on their tax file.

Many do not have fixed addresses, making it difficult for the CRA to mail them their tax returns for verification purposes.

Overly complex code

The CRA is working on expanding the SimpleFile program. Last summer, it conducted a pilot project that used phone, digital and paper options for tax filing. It invited more than 500,000 low-income Canadians who have never filed taxes or have gaps in their tax history to participate.

The agency said it “will chart a path forward beyond 2025 that respects the needs of non-filing, lower-income taxpayers, to make sure more individuals have access to the benefits and credits designed to support them,” the agency said in its email.

The federal government previously announced that it wants to go beyond simplifying tax filing, to automatically completing it for certain individuals. The newly elected Carney government will determine whether it will implement automatic tax filing after a new cabinet is sworn in, the CRA told Canadian Affairs in an email.

A June 2024 Parliamentary Budget Office report estimates that an automatic tax filing system would cost about $50 million a year to implement and administer. It says this system could result in Canadians who would not otherwise file taxes receiving at least $1.6 billion in benefits a year.

But sources say automatic tax filing would be hampered by Canada’s overly complex tax code.  

“It can be much simpler to file taxes. It doesn’t have to be that big, complicated thing,” said Alexandre Laurin, a director of research at the C.D. Howe Institute. In 2022, he published a report about automatic tax filing around the world and implications for Canada.

Right now, the CRA cannot file individuals’ returns in a way that benefits them most, Laurin says. The agency lacks information about all the provincial tax credits or benefits individuals may claim. 

Mentality change

Others say the Canada Revenue Agency should not expand SimpleFile or offer automatic tax filing to middle-income people.

“The Canada Revenue Agency does not have an incentive to get everyone’s tax bill down as low as possible,” said Jay Goldberg, Canadian affairs manager for the Consumer Choice Centre, a non-partisan advocacy group that promotes consumer choice. “They have an incentive to maximize revenue for the government.” 

Goldberg says the tax system needs to be simplified by eliminating or reducing some tax credits and benefits. But he thinks some credits should stay, such as the Disability Tax Credit. 

“I’m not necessarily saying having zero tax credits is the answer,” he said. “But having a very small number of tax credits that are important to a significant group of people because of a very important overriding policy objective, like ensuring Canadians with disabilities are able to keep more of their income because of the cost of having a disability.”

But for Canada to have a simpler tax system, politicians will need to change their mentality, Laurin says. 

Federal and provincial politicians have a “tendency to look at the tax system to take care of all sorts of social problems,” he said. Governments often try to relieve financial burdens by creating specific tax credits.

Laurin says there are other ways to redistribute wealth to individuals in need. For example, people who currently receive the Disability Tax Credit could get their benefits through Service Canada and not the Canada Revenue Agency, he said. 

“[The reason for] all these credits and deductions in the first place was to use the tax system to redistribute money,” said Laurin. If the government were to simplify its redistribution methods, automatic tax filing could be possible, he says. 

“But we’re very far from there.”

For his part, Goldberg says filing taxes helps people understand how much of their money goes to government programs. It can motivate them to hold governments accountable for spending decisions. 

“All of that comes through being involved in your taxes, and that’s something you don’t have if the Canada Revenue Agency were to automatically be doing it for everybody.” 

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