Canadians could get more than $1 billion in unclaimed benefits through automated tax filing system: PBO

According to a report published by the Parliamentary Budget Officer (PBO), Canadians would receive more than $1 billion in unclaimed benefits annually through an automatic tax filing system.

On Thursday, Canada’s tax watchdog outlined how an automated tax filing system would benefit some Canadians, especially those in low-income and vulnerable households who have never filed returns before, or may have gaps in their filing history.

According to a 2020 study conducted by two professors at Carleton University, between 10 and 12 percent of Canadians fail to file their returns each year and could, as a result, miss out on benefits they would otherwise be entitled to.

The PBO revealed that if the automated system were rolled out now, eligible taxpaying households would receive more than $1.6 billion in benefits this current fiscal year. In five years this will amount to $1.9 billion.

This billion-dollar figure includes all benefits taxpayers receive after filing their individual tax returns, such as the Canada Child Benefit, the Canada Workers Benefit and the GST/HST tax benefits. The automated system would also provide the Canada Carbon Rebate to more households outside British Columbia and Quebec, although it could slightly reduce the amount of money provided because more taxpayers would be “sharing the same envelope,” PBO notes.

Although the automated system was first proposed in the 2023 federal budget, the Canada Revenue Agency (CRA) said last May that it would begin sending out invitations this summer, but did not indicate exactly when that would begin.

The PBO estimates that the administrative costs of running an automatic tax filing system will be $57 million in fiscal year 2024-25, rising to $65 million in 2028-29. This assumes that the CRA’s automated service will complete the tax returns of all non-filers with sufficient tax information.

According to a 2023 study co-authored by four professors at Carleton University, 42 percent of families with an annual income of $50,000 and roughly two-thirds of welfare recipients filed simple tax returns in 2019 (a T1 without any source of complexity as defined by the tax authorities).

From this finding, the PBO concluded that the CRA can independently complete the tax returns of a “significant portion” of low-income households. However, the federal watchdog notes that there is “significant uncertainty” about the exact number of returns the CRA would complete on its own, and the eligibility criteria for non-filers.

“The aggregated nature of the data used for this analysis inherently limits the accuracy of the estimated benefit amounts to which non-filers may be entitled,” the report said.

Expansion of the CRA’s automated telephone service

The federal tax agency also plans to expand its SimpleFile telephone service – previously called File My Return – where eligible individuals can file their returns after answering a few questions over the phone from a CRA agent.

The report shows that between 2018 and 2023, the CRA sent between 500,000 and 1.3 million invitation letters to eligible Canadians categorized as having low or fixed incomes and a history of filing simple tax returns.

In 2024, the number of invitations rose to almost 1.6 million, and is expected to rise to two million next year.

In addition to expanding the number of invitations, the CRA will test a digital and paper version of this service, aimed at taxpayers with gaps in their filing history, or who have never filed a return. This is only provided to invited individuals, who must then initiate the process of filing their tax returns in this way.

However, in 2023, almost seven percent of invited guests used this service, or 50,450 users. At its peak in 2020, 69,620 users filed their taxes by phone through SimpleFile.

The cost of expanding this service will be about $1 million per year over the next two fiscal years, the PBO estimates, based on what was announced in the 2023 federal budget.