The agency's job is to collect taxes. If it also files more Canadians' taxes for them, that puts it in a classic conflict of interest
Trusting the taxman to do your return is like trusting your dog to protect your burger.
The feds are quietly expanding the Canada Revenue Agency’s power to file Canadians’ income tax returns automatically. In 2020, the government said it would “introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.” Last year’s budget announced a pilot project, with the CRA to “present a plan in 2024 to expand this service.”
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This may seem like a welcome way to eliminate some of the headaches of tax season. But the CRA acting as both tax filer and tax collector is a serious conflict of interest. The CRA’s objective is to increase the number of tax dollars taken from Canadians. The goal of taxpayers is to keep as much of their money as possible. If CRA takes over tax prep, who’s likely to win that struggle?
Consider the British experience with automatic tax filing. In 2010, six million taxpayers received incorrect returns from Britain’s tax agency. Three-quarters of those returns overbilled taxpayers. Automatic tax filing won’t remove headaches, just delay them. Taxpayers will still have to check the CRA’s homework to ensure they’re not being overcharged.
Automatic tax filing would also mean more tax dollars going to the CRA itself. The demand for tax agents would rise, even though CRA is already one of the largest arms of the federal government, with about 60,000 employees. The U.S. Internal Revenue Service has 79,000 employees yet serves a population about 10 times larger. In Canada, there is one tax employee for every 700 citizens. In the U.S., there’s one for every 4,000 citizens.
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And what happens if in the middle of doing your taxes the CRA goes on strike? Last year, CRA employees did just that — during tax season, of course — demanding 30 per cent wage increases over three years. Even so the CRA refused to extend the tax deadline. More power for the CRA gives union negotiators more leverage the next time they try to squeeze taxpayers.
Public confidence in the CRA is not high, to say the least. It delivered COVID benefits to hundreds of people who were dead, in jail, or not living in Canada or who were still children. “We’re flooded with complaints,” the Taxpayers’ Ombudsperson said, as filings about the CRA spiked 45 per cent from pre-pandemic levels.
Consider the example of Eli Humby, who owned a logging business in Newfoundland. “They took about $1.2 million worth of assets,” Humby said. “They took (the jobs of) 12 full-time employees … (The CRA) destroyed (my life) completely.” After a seven-year battle, a federal judge ruled the CRA’s “case was baseless.”
The government can’t even pay its employees without costing taxpayers $2.4 billion, the bill (so far!) for its Phoenix pay system, or launch a simple app like ArriveCAN without costing $60 million.
And what happens when the CRA makes a mistake, as it inevitably will — not just because it’s the CRA and has a history of mistakes but because it processes millions of tax files every year and in such a big business mistakes are bound to happen?
Good luck getting CRA on the phone. “Most of the time there’s these really long wait times,” accountant Ed Mierzewski said. “I’ve had a significant number of call drops. I’m left banging my head against a wall.” And if they do pick up, do you have confidence they will fix their mistake without long delays or you having to hire expensive outside help?
If the government’s goal is to help the roughly 10 per cent of Canadians who don’t file tax returns, it makes no sense to rewrite the rules and make everyone else worse off. To renovate a guest room do you burn your house down and rebuild from scratch?
Moreover, there are already free programs to help those who struggle during tax season. “People with modest income and a simple tax situation may use the free services of community volunteer tax clinics,” explains the C.D. Howe Institute. “The CRA invites selected individuals with low or fixed income … (to) file quickly for free over the phone.”
If the feds really wanted to make tax filing less painful, they could reduce the complexity of the tax code and make it easier for everyone to navigate, including those of us who don’t have help from armies of lobbyists and accountants.
Financial Post
Franco Terrazzano is federal director of the Canadian Taxpayers Federation.
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