Spotlight: The time tax of doing your taxes
The time tax refers to the many hours that people spend doing paperwork or other tasks just to receive government services and supports. At its worst, the time tax can be regressive, wasteful, and ineffective. Despite this, the time tax often flies under the radar. We think it deserves more attention. This is the fourth article in our series on the time tax, the harms it causes, and how it might be fixed.
As the saying goes, Canada has two seasons: winter and construction. And while neither is particularly enjoyable, it’s a third season that might be the most dreaded by Canadians — tax season. Almost half of Canadians think our tax system is becoming more complex over time. With a growing list of intricate deductions and benefits, more workers in the gig economy, and difficulties accessing Canada Revenue Agency’s (CRA) online systems and call centres, they are onto something.
Whether it’s the Canada Child Benefit, the new grocery rebate, or clean energy incentives, more and more policies are tax policy. That makes it both more complex and more important to get it right.
Tax filing is time consuming, even with software taking care of the calculations. It begins with gathering all your documents: scanning paper T4 slips from your two employers, chasing down rent receipts from your landlord, finding that daycare invoice from ten months ago, or tracking down every pharmacy receipt for your insulin cartridges. It might also feature a side quest to contact CRA to renew access to NETFILE (which itself means finding last year’s tax return).
You’re faced with questions. What payments do I include when calculating my total childcare costs? Should I use the flat rate or detailed method for claiming home office expenses? Do I have to report tips from my part-time job? Should I split my CERB repayment deduction between this year and last year?
With April 30th fast approaching and no clear answers, you decide it’s time to seek professional help. An online search shows there are two volunteer-led tax clinics in your community, but they’re only open when you’re at work and you’re not sure if you’re eligible. Instead, you spend your weekend comparing rates among tax services to find one within your budget and reluctantly book an evening appointment — and a babysitter.
Your return is filed on time thanks to the magic of tax preparers and a mad dash to find your child’s birth certificate. Your assessment arrives within CRA’s two-week service standard for electronic returns and a refund is deposited into your bank account. It’s lower than you expected and you’re not sure why. Knowing it could take months to go through a dispute resolution process, you decide not to file an appeal and bring this year’s tax season to a close.
If this story sounds familiar, you have probably thought about enacting a simpler solution to the burden of tax compliance: not filing a tax return. And you wouldn’t be alone. In the 2015 tax year, as many as 12% of working age adults in Canada did not file a personal tax return, leaving a combined $1.7 billion of unclaimed benefits on the table. This decision is less about evading taxes or income reporting (since people typically have taxes withheld and income reported by their employer already), and more about avoiding a filing process that might seem to them more likely to hurt than help. But it comes with downstream consequences: Canada’s tax system is the main infrastructure used to assess and administer financial benefits, so not filing a tax return often means not receiving these payments.
For low-income Canadians, not filing could mean missing out on more of these unclaimed benefits than others. That’s because low-income households are often the most impacted by the complexity of Canada’s personal income tax system. To access certain means-tested benefits, you not only need to file taxes and initiate a claim, but you might also be asked to prove your marital status, disability, or primary caregiver role, sometimes verified by a third party. Without the time or resources for this process, you might not receive critical income supports like the Canada Child Benefit or Disability Tax Credit. In other words, the time tax of filing taxes is a regressive one.
So how do we make our tax system less taxing?
CRA does have some tools in place to streamline the filing process. People living on low or fixed incomes with simple returns may be invited to use File My Return, a service that automatically files your taxes through a phone screening. CRA also offers auto-fill for electronic filers, where sections of your return are automatically populated with your information when using certified tax filing software. In recent years, auto-enrolment through tax returns has replaced separate applications for the Canada Workers’ Benefit and the Guaranteed Income Supplement.
These moves bring us closer to the ultimate time-tax-of-taxes solution: return-free filing. For the many people with simple returns, the CRA already has most of the information in your tax return — submitted for example by your employer or financial institution. Many countries have tax systems that do not require people with simple tax situations to file a return at all, while those with more complex tax scenarios either sign off on a return generated by government or file an abbreviated return. In any case, return-free filing generally means less time (and frustration) spent by individuals on income taxes and more people getting the benefits they’re entitled to.
For Canada, a full transition to return-free filing likely depends on simplification of the tax code, which is no small feat. That could mean reducing reliance on tax credits to address things like high medical expenses (where they are a mediocre policy tool anyhow). It would also mean a careful eye to reducing overall tax compliance burden and not simply shifting it onto employers and government agencies. A more promising near-term solution is targeted return-free filing — and the good news is that Canada is on board. This year’s federal budget announced a pilot program for automatic tax filing that aims to get benefits into the hands of vulnerable non-filers, with plans to expand the model to more Canadians as soon as possible. Broad expansion is feasible: recent estimates suggest that one-third to one-half of Canadian families have simple enough tax returns for CRA to automatically file them.
For time tax warriors, tax return avoiders, and overburdened benefit seekers, government action on return-free filing is a welcome direction. It ends this tax season with a strange feeling of hope that maybe next year’s tax season will not be quite as dreadful.
By Alissa Klingbaum
