Low income Canadians could benefit from automatic tax filing

Many low income Canadians are missing out on benefits because they don’t file tax returns.

image: Victoria News

While most Canadians such as me think of what they owe at tax time, low income Canadians should be thinking about what they could receive. They pay virtually nothing in taxes and receive the greatest household income in terms of benefits from the Canada Revenue Agency.

So, why wouldn’t low income Canadians file returns? The reasons vary but when you don’t have much money, you can’t afford to pay for someone to prepare your taxes or to pay for a program like TurboTax that helps navigate the tortuous forms.

And this year could mean even fewer low income Kamloopsians file returns because the volunteers who usually help out with taxes are physically isolating themselves. That’s certainly the case for the society I belong to, CSI Kamloops. In normal times, we help thousands of people prepare returns at our North Hills Mall location. This year, we might be able to help at our Brock Activity Centre dependent on whether we can open.

For low income Canadians, the CRA is more like a social service than a tax collection agency. Since returns are used to determine eligibility for a abundance of other benefits, low income Canadians could be missing out on them as well. Professor Jennifer Robson of Carleton University explains:

“For many Canadians, the tax system can be more like a social service system. It delivers cash benefits such as the GST credit and Canada Workers’ Benefit, for example. Through a notice of assessment from CRA, the system also helps people prove their annual income so they can qualify for means-tested programs including housing and daycare subsidies, home heating rebates, and many others (Canadian Centre for Policy Alternatives Monitor November/December 2019).”

Working-age Canadians in the bottom 20 per cent of other income get the vast majority of their income from government transfers, “income that could be put at some risk if they can’t or don’t file a return,” adds Robson.

One way to ensure that low-income Canadians receive the benefits of filing a tax return is to have their returns automatically filed for them.

Almost everything is now in place for that to happen. You no longer have to apply for the Canada Workers’ Benefit because the CRA automatically assesses returns for eligibility for the tax credit. The same is true for the Guaranteed Income Supplement. Automatic enrolment is in place for the GIS so that seniors no longer have to apply for this benefit.

When I filled out my tax return using TurboTax, my forms were automatically filled out by accessing my CRA account. Except for political and charitable donations, CRA already had all my information.

Automatic tax filing doesn’t mean that the returns can’t be reviewed and corrected. In my case, I had the option of changing the CRA generated forms or not. Automatic tax filing probably wouldn’t work for those with complex returns such as business owners who could opt out the automatic return.

Not everyone thinks it’s a good idea. The tax preparation industry including Intuit, maker TurboTax, has spent $6.6 million in the U.S. lobbying against government tax filing. If taxes could be filed automatically, it would eat into their profits.

Norway, Denmark and Sweden already offer automatic tax filing. Other jurisdictions such Chile, Spain and California are coming on board. It’s all but done in Canada.

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Cuts to CRA encourage tax avoidance

It’s a familiar pattern: talk tough and do nothing. The Harper government says that they want to crack down on tax evaders; all the while they cut 3,000 positions from the very agency that could investigate. To top that, they fail to pass legislation that would plug loopholes.

To enable tax avoidance, the Harper government signed a treaty in 2011 with Bermuda to allow Canadians to transfer money there and transfer tax-free dividends back, reports Paul Weinberg in the CCPA Monitor.

For appearances sake, the finance minister made a trip to Bermuda in 2013 to assure fellow G8 countries that Canada was on board in the effort to close tax loopholes.

It’s fine to talk tough but actions speak louder. Alain Deneault, professor at The University of Quebec discloses that Canada is complicit in sheltering tax avoiders in his soon to be released book Canada, A New Tax Haven: How the Country that Shaped Caribbean Tax Havens is Becoming One Itself.

While researching his book, Professor Deneault found inside sources that exposed the government’s hypocrisy.  “Officially, Canada shows solidarity with other western countries about tackling tax avoidance. I have informants in other countries, people whom I talk to when I travel, and they say that Canada, in the meeting rooms, is also always fighting against any kind of proposal that would make it difficult for corporations to use tax havens.”

It’s not just big Canadian corporations that are avoiding taxes. Court documents recently obtained by the CBC reveal that a wealthy Victoria family paid virtually no tax over a span of eight years in a sham cooked up by one of the most respected accounting firms, KPMG Canada.

The Canadian Revenue Agency found that that between 2002 and 2010, the Victoria family paid little or no tax, despite receiving nearly $6 million from an offshore company. KPMG lawyers claim any money the family received were “gifts” and therefore non-taxable.

KPMG must have felt emboldened by the inaction of the Harper government. The feds were essentially signaling to KPMG that despite the tough talk, this kind of dodge was OK.

Imagine the number of tax avoiders that Canada Revenue Agency could find if they were properly staffed?

While other G8 countries are tightening up laws to reduce tax avoidance, Canada’s net to catch cheaters has holes in it big enough for a whale to swim through.

NDP tax critic, Murray Rankin, tried to pass a private members bill that would tighten the net and bring Canada up to par with the tougher approach to tax cheats taken by the U.S.  It failed to receive government support.

“Murray Rankin’s bill is right on,” says Robert McMechan, a former general counsel in the tax litigation section of the Department of Justice. He’s seen too many “complicated corporate transactions where money goes around a circle and nothing of real economic substance occurs.”

I gladly pay my taxes, not just because the money is well spent in the services and infrastructure I receive in return, but as investment in the kind of Canada I believe in. It’s too bad the Harper government isn’t of the same mind.