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posted 3 weeks ago
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The Canadian federal government is advancing its initiative to expand access to automatic tax filing, including for individuals in the middle-income bracket.
The Canadian federal government, as per the fall economic statement released on December 16, 2024, announced new measures aimed at streamlining the tax filing process, making it easier for you to file your annual returns while expanding on existing efforts.
The fall economic statement emphasizes the need for change, stating, “It is time for Canada to accelerate modernization of how Canadian taxpayers file their taxes and make needlessly complicated and costly tax filing services a thing of the past.”
Furthermore, the federal government is advancing its efforts toward broad-based automatic tax filing, stating, “Many countries have already pursued full-scale automatic tax filing, and the federal government is launching the second phase of its work to move Canada towards broad-based automatic tax filing.”
One of the announced measures includes new legislation enabling the Canada Revenue Agency to automatically file tax returns for certain lower-income Canadian taxpayers, beginning as early as the 2025 tax year.
As part of a national pilot program first proposed in the 2023 federal budget, the Canada Revenue Agency invited 500,000 lower-income Canadians in July 2024 to file their 2023 tax returns using its SimpleFile services. This initiative targets individuals who have filed taxes before but have not filed taxes for at least one year, offering filing options by phone, online, or by mail.
The pilot program was introduced to assist low-income Canadians who have never filed a tax return or have gaps in their filing history.
In February 2024, the CRA expanded its SimpleFile by Phone service from 500,000 to 1.5 million eligible Canadians who have “a lower income or a fixed income and who are in a simple tax situation that remains unchanged from year to year” and have filed their taxes in recent years.
The federal government is now exploring the expansion of automatic tax filing to include “middle-class Canadians with simple tax situations.”
The initiative may cover individuals with gaps in their tax filing history who do not typically claim many deductions or credits. It could also extend to modest-income families who cannot afford paid tax filing services.
The fall fiscal update proposed an amendment to the Canada Revenue Agency Act, adding the simplification and automation of tax filing to the responsibilities of the National Revenue Minister.
The Canadian Federal Government is also considering ways to improve access to free online tax software for Canadians.
As of July 2024, Canadians have three options for automatic tax filing through the SimpleFile program:
According to the CRA, the SimpleFile service allows tax returns to be filed securely, for free, and in as little as 10 minutes.
Eligible individuals using the phone or digital option were required to answer a few simple questions and verify their personal information.
For those filing by phone and who set up a personal identification number (PIN), any eligible refund was provided at the end of the call.
If no PIN was created, a Notice of Assessment was issued by mail or sent to the individual’s CRA account after processing.
As of November 3, 2024, 93% of the low-income Canadian taxpayers invited to participate this year successfully filed their tax returns, resulting in $3 billion in benefits and credit payments, including:
The CRA provides a secure digital service called “Auto-fill my return,” which enables individuals and authorized representatives using certified software to automatically populate sections of their income tax and benefit return forms.
The national pilot program is set to continue next year, with the CRA planning to expand its SimpleFile (formerly File My Return) by Phone service to include a total of two million Canadians for the 2025 tax season, allowing more individuals to file their taxes automatically.
The federal government estimates that nearly 20% of Canadians earning less than $20,000 do not file a tax return. Additionally, a 2020 report co-authored by Carleton University professors found that between 10% and 12% of Canadians do not file their taxes.
According to a June 2024 report by the Parliamentary Budget Officer (PBO), implementing a broader automatic tax filing system could result in Canadians receiving over a billion dollars annually in currently unclaimed benefits due to unfiled tax returns.
Several countries have already implemented full-scale automatic tax filing. In nearly 30 nations, tax authorities generate prefilled tax returns for residents, which include a preliminary tax liability assessment. Taxpayers can review the information and make any necessary modifications before submitting their return.
In countries like Sweden and New Zealand, if no changes are made, the preliminary tax assessment is automatically accepted. Meanwhile, Denmark and the United Kingdom require taxpayers to confirm their prepopulated returns to finalize the filing process. Even the United States has taken steps toward automation, with the Internal Revenue Service (IRS) launching the Direct File service this year. This free electronic filing platform is available to eligible taxpayers in 12 of the 50 U.S. states.
With automatic tax filing widely available in other developed countries, the Canada Revenue Agency and the Canadian Federal Government need to expand this service to middle-class Canadians with “simple tax situations.”
However, automation alone does not resolve the deeper issue of Canada’s overly complex tax system. True reform requires broad-based tax policy changes. The current system is burdened with numerous deductions and niche tax credits—such as the Volunteer Firefighter’s Amount, Digital News Subscription Amount, and the Eligible Educator School Supply tax credit—that make filing unnecessarily complicated. Taxpayers must keep detailed receipts to claim these credits, often for minimal financial benefit, adding unnecessary administrative burdens to both individuals and the CRA.
In 2021, for example, only 82,000 teachers claimed the school supply tax credit, which had a maximum value of $250. To qualify, purchases had to fall within a specific list of durable goods outlined in the Income Tax Regulations (Part XCVI, Regulation 9600), and teachers were required to keep their receipts in case the CRA decided to tax audit their claims.
Expert Canadian tax lawyers urge the Canadian Federal Government to simplify the tax system by eliminating most boutique tax credits and replacing them with a higher Basic Personal Amount (BPA) and a lower tax rate for the first federal income bracket (covering income up to $55,867 in 2024).
This reform could be revenue-neutral by calculating the average tax benefit Canadians receive from the eliminated credits and adjusting the BPA and bracket rate accordingly.
While the Canada Revenue Agency is tasked with enforcing and administering the Income Tax Act—and is now implementing automatic tax filing for some Canadians—it remains the taxpayer’s responsibility to ensure their tax returns are accurate and complete. If you have any doubts or concerns about your taxes, contact an expert Canadian tax lawyer for guidance.
There are several CRA-certified tax software options, such as TurboTax and Wealthsimple, that provide free tax filing for individuals with simple tax returns.
For more information on available free tax software and guidance on filing your taxes, consult our expert Canadian tax lawyers.
To qualify for SimpleFile services, you must meet the following criteria:
Yes, but only for your federal tax return. Regardless of the option you choose, Quebec residents must still file a separate provincial tax return with Revenu Québec.
If you have any questions about the SimpleFile services, you can contact the CRA at 1-800-959-8281.
Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
posted 8 hours ago
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