- 4 mins
For a more comprehensive understanding of low-income tax clinics and the tax system in Canada, please refer to Part 1.
Filing Taxes: A Global Perspective
While many North Americans view tax filing as a universal norm, the reality diverges significantly. Surprisingly, 36 other countries, including the UK and Japan, have already embraced a return-free filing system. This approach, often referred to as return-free tax filing, streamlines the process by having the government populate tax forms with taxpayers' financial data, which is then verified and confirmed by the taxpayers. This reduces the necessity for laborious manual data entry, making tax filing more accessible. Although complexities do arise for the self-employed, those with capital gains, or business owners, the system's overall efficiency and simplicity are evident. Adopting such a system presents challenges and would necessitate adjustments to our existing North American structure, but it is certainly not insurmountable.
Return-free filing offers numerous benefits, chiefly increased efficiency and reduced administrative burdens. While the Canadian government had previously contemplated this approach, as suggested by the Liberal government in 2020, complications have arisen due to the intricate link between our taxes and social benefits. One proposed solution is to disentangle these two aspects, establishing an autonomous system dedicated to determining and administering benefits.
The international landscape reveals that the notion of return-free filing is not only plausible but also practical. The success of this approach in multiple countries underscores its potential to alleviate the tax filing ordeal for individuals. As conversations around revamping North America's tax filing system persist, it is essential to consider both the merits and challenges of adopting a return-free model. While hurdles exist, the prospect of a more streamlined, efficient, and accessible system beckons—a transformation that could ultimately redefine the experience of tax filing for millions.
Overcoming Obstacles: The Path to Change
In light of the implementation of alternative tax filing systems in numerous developed countries, a question naturally arises: why haven't Canada and the US followed suit? In brief, the influence of tax software lobby groups has played a pivotal role in impeding the adoption of a return-free filing system. This hurdle is echoed by experts like Lindsay Tedds, an associate professor of economics at the University of Calgary, who assert that Canada should have transitioned to a return-free model two decades ago.
A glimpse of potential progress emerged in 2016, when efforts were made to establish a more effective tax filing system. Regrettably, these efforts were thwarted in 2018, as the Canada Revenue Agency (CRA) and the Canadian tax preparation software industry reached an agreement to rely on private services instead of investing in a public option, effectively halting the momentum. Industry entities such as Tax-Filer Empowerment Canada have successfully positioned tax filing software as indispensable, even though 36 other nations have managed to navigate tax filing without leaning on profit-driven private sector involvement for extended periods.
The resistance to change seems to stem from entrenched interests and the influence wielded by powerful industry groups. While it may appear perplexing given the evident success of alternative systems in other countries, these challenges remind us that reform often encounters roadblocks when it threatens established systems and interests.
Navigating the Path Forward
With the prospect of change looming, it's important to consider the course of action moving forward. While transformative shifts would primarily occur at the policy level, there are proactive steps that can be taken on the front lines. These actions not only address immediate concerns but also lay the groundwork for a more equitable tax system.
Foremost, cultivating awareness about the advantages of tax filing is crucial. A common misapprehension among tax filers is the fear of accruing additional payments if they abstain from filing. Clarifying this misconception is vital: often, low-income Canadians have more returns owed to them than taxes due. Even in cases where taxes are owed, settling promptly proves more advantageous than deferring payment. To facilitate this understanding, Prosper Canada's Benefits Wayfinder tool offers invaluable assistance in identifying eligible benefits. Recognizing that taxes can evoke apprehension among individuals reliant on fixed incomes, it's paramount to approach the topic with empathy and care.
Equally significant is the promotion of awareness regarding fraud prevention and privacy safeguards. While it might seem intuitive, the realm of fraud prevention is intricate, necessitating open discussions and knowledge sharing. Organizations, in tandem with individuals, play a pivotal role by empowering their staff to detect fraud. Implementing seemingly small measures—such as regular password updates and data purging—can contribute significantly to overall protection.
Lastly, the pursuit of innovative solutions, coupled with collaboration across sectors, is imperative. Non-profits, even with increased budgets, require innovation. Operating in isolation is untenable; the challenge demands a collective effort. Thus, a call is extended to professionals across various fields, from UX designers to cybersecurity experts, to join forces and offer their expertise. Recognizing the subpar design of our current tax filing system is a starting point—one that invites the opportunity for substantial improvement.
In conclusion, navigating the road ahead involves a multifaceted approach. By raising awareness, enhancing fraud prevention measures, and fostering cross-sector collaboration, we lay the groundwork for a more streamlined and equitable tax system. While challenges persist, the potential for transformation is palpable, underscoring the significance of collective action in reshaping the future of tax filing.
Header image courtesy of https://turbotaxsucksass.net/
