Budget 2025 built on a previous announcement to transition to “automated federal benefits” to make it easier for Canadians to file tax returns and access financial benefits. Starting in the 2026 tax year, pre-filled tax returns will be available on the Canada Revenue Agency’s (CRA’s) My Account online filing system and automatically filed for about one million lower-income individuals with simple tax situations. This offering will be scaled up to about 5.5 million individuals for the 2028 tax year.
This commentary addresses four questions:
Pre-filled tax forms and automatic filing aim to simplify tax filing.
Currently, individuals must fill out their tax returns at tax time. This means an individual must — on their own or using a tax filing service (generally for a fee) — complete a paper tax return or a digital tax return using tax software. If certified tax software is used and the individual gives permission, some fields of an individual’s tax return are auto populated with information from the CRA. This information comes from income tax slips, such as a T4 from an employer or a T5007 from a provincial income assistance agency. These slips are sent to both the individual and the CRA — a process known as “third-party reporting.”
After filling in their tax return, the individual must submit it to the CRA to complete filing. If certified tax software is used, this can easily be completed digitally — it’s basically a one-click submission process. Upon submission, the CRA checks the tax return against information from third-party reporting to confirm taxes owing and benefits payable.
With pre-filled tax returns, the CRA completes the first step of tax filing — filling out the tax return — for those with “simple” situations.
The 2025 federal budget suggests that eligible individuals may change their pre-filled tax forms, or not use them at all. This means individuals will have the opportunity to change or reject their pre-filled tax returns if they want to. They can also hire a tax filing service to make changes for them.
Allowing sufficient time for individuals to change their pre-filled tax form will reduce errors. For example, the CRA does not automatically pick up a change in marital status that occurs mid-year — something that may alter the benefits an individual receives (though it does not change how taxes are calculated). Likewise, the CRA might not capture a move from one province to another that would change the benefits an individual is potentially eligible for and the provincial tax schedules they are subject to.
It is important to note that pre-filled tax forms are different from auto-populated tax forms in certified tax software. First, auto population requires the individual to access certified tax software. Second, the individual must permit the software to use the CRA’s information from third-party providers to auto populate the form. In contrast, pre-filled tax forms are filled out by the CRA and require no access to certified tax software.
Budget 2025 also proposes legislative changes that would allow the CRA to submit a tax return on behalf of certain eligible individuals with lower incomes in simple situations who do not owe tax and do not file themselves. This is called “deemed acceptance.” After a certain period, the pre-filled tax forms will be submitted, with or without changes from the individual. Deemed acceptance ensures that eligible people can receive the benefits to which they are entitled.
Canadians must file a tax return to access many government benefits. Automatic tax filing helps more people access the financial supports they are entitled to.
The CRA administers many federal, provincial and territorial cash transfers. These benefits include the Canada Child Benefit, Canada Workers Benefit, Canada Disability Benefit, GST/HST Credit, Ontario Trillium Benefit, and provincial/territorial child and family benefits. People who don’t file a tax return are not assessed, and therefore, will not receive these cash transfers even if they are eligible.
An individual must also file a tax return to be considered for some provincial and territorial income and social supports (administered through service providers other than the CRA). These include the Affordable Child Care Benefit in B.C., the Ontario Trillium Drug Program, and Dental and Optical Assistance for Seniors in Alberta.
An estimated 10 to 12 per cent of Canadians did not file tax returns in 2015. This is particularly problematic for low-income earners: people living in poverty were 8.6 percentage points less likely to file taxes than those with higher income. Working-age non-filers lost an estimated $1.7 billion in benefits administered through the CRA — benefits they were otherwise eligible for.
Part of the challenge lies with the law. Generally, only those who owe taxes must file a tax return. Individuals with no tax payable, because either their income is low enough or their employer withheld sufficient (or more than sufficient) taxes and remitted them to the CRA, are not obliged to do so. However, there are some exceptions. In special circumstances, such as repaying employment insurance benefits or reporting the sale of capital property, individuals who may otherwise have no tax payable are required to file a tax return. Nonetheless, many individuals may not file taxes simply because they are not legally required to.
In addition, there are multiple barriers to tax filing, including health conditions (i.e., mental or physical capacity), ability, owing money and fear of repercussions, and a lack of trust in government. A tax filing service may also be cost-prohibitive. Moreover, tax returns can be perceived as confusing and challenging, particularly for individuals who are not adept at math or comfortable with numbers. The terminology can also intimidate those who are not proficient in English or French. Ultimately, these barriers may lead to non-filing.
The CRA implemented initiatives to help people who do not file taxes receive the benefits they are entitled to. For example, the Community Volunteer Income Tax Program helps low-income Canadians fill out simple tax returns. While it has assisted many individuals, it requires local community organizations to register to provide the service and recruit volunteers. It also expects people to voluntarily interact with the program by attending in person.
Likewise, since 2018, the CRA has offered SimpleFile, an invitation-based, automated phone service that claims to provide a simplified tax filing method to low-income Canadians. SimpleFile comes with six pages of instructions. Its phone interface allows individuals to submit their tax return by answering a short list of questions that confirms the CRA’s information. To confirm this information, the individual must have a phone and know their social insurance number, the exact way their name is listed on their tax file and what information the CRA has. These requirements present impediments to SimpleFile, particularly for low-income Canadians. Indeed, SimpleFile uptake has been low: in 2023, only seven per cent of invited individuals (50,450 of 708,250 invitations) used the service.
Although well-intentioned, these initiatives fall short for various reasons, including barriers to implementation and access, and mistrust.
Automatic tax filing has the potential to remove many of the barriers in the status quo approach, enabling more people to file taxes. It does not come with long instructions or require Canadians to know all the information necessary to fill their forms. It enables Canadians to check (and change) their pre-filled tax returns from the comfort of their homes at any time of their choosing. And it helps people who lack the ability or confidence to complete and file their forms, and for whom tax filing services are prohibitively expensive.
To ensure people who will benefit the most are aided first, automatic tax filing should start with those who have simple tax returns — as the federal government has suggested. In particular, automatic tax filing should first focus on individuals with only employment or social assistance income in the relevant tax year and who have no or limited tax liability. Recent estimates suggest that 28.8 per cent of Canadian families filed tax returns with information that was already collected by the CRA through third-party reporting, and had no tax liability. These families were much more likely to have low income and receive social assistance.
Automatic tax filing allows low-income non-filers to file taxes and claim benefits, but technological obstacles persist.
First, to check pre-filled tax forms and make desired changes, individuals will need to log in to their CRA My Account — a digital service where one can access tax information, apply for tax benefits and make payments to the CRA.
However, people who have not filed taxes recently, or ever, may not have access to their CRA My Account. To gain access, they must verify their identity by either uploading photo ID and a real-time photo or registering online using a security code mailed to them. For both methods, internet access and digital technology (i.e., computer, phone, tablet) are required. Depending on the chosen method, a fixed mailing address or a piece of photo ID is also necessary.
These requirements can pose challenges for some Canadians. Evidence shows low-income households have much less home internet connectivity than those with high income. Likewise, in 2023, only 80.5 per cent of rural households, 67.3 per cent of northern households and 61 per cent of First Nations communities had sufficient internet speeds (at 50/10 download/upload Mbps target).
Given persistent affordability and adoption challenges of internet access for low-income households and northern and Indigenous communities, this barrier will likely remain for some time. Thus, any digital requirement to check and change pre-filled tax forms means some individuals will have errors in their filed returns.
Individuals eligible for automatic tax filing need a bank account to which the CRA can electronically deposit federal benefits. This expectation can also create barriers.
Some people may have a bank account that is not registered with the CRA. To register these accounts, they must access their CRA My Account online, which requires digital access — a barrier in and of itself, as discussed previously.
Others may not have a bank account at all. In the Prairie provinces, 3.08 per cent of income assistance recipients do not have bank accounts. In the Atlantic provinces, it is 2.69 per cent, and in Ontario, it is 1.63 per cent.
To deliver federal benefits to people that need them most, governments must increase financial access. For example, they could continue supporting not-for-profits such as Prosper Canada that work with Canadians to grow financial empowerment and access to financial products, including bank accounts.
While automatic tax filing aims to ease access to federal benefits, complex benefit application processes will continue to be a barrier.
The most pressing example is the Canada Disability Benefit (CDB), a cash benefit of $200/month to persons with disabilities with low income. To qualify for the CDB, an individual must first be eligible for the Disability Tax Credit (DTC). But eligibility for the DTC is complex: one must prove, via medical documentation, that they have a relatively severe and permanent disability. Currently, this verification cannot be automated by any tax system due to the complex nature of the proof required.
Budget 2025 introduces a cash transfer to offset the DTC application costs. While a good first step, it does not simplify the underlying DTC assessment process or automate access to the CDB.
The federal government could relax the CDB requirements to automate access. For example, individuals who receive any form of disability social assistance (e.g., a provincial or territorial disability assistance program or Canada Pension Plan [CPP] disability benefits) could be automatically eligible for the CDB. This would complement pre-filled tax forms and their goal, ensuring that federal benefits are easier to access through the tax system.
In 2021, 20 countries from the Organisation for Economic Co-operation and Development (OECD) use automatic tax filing with deemed acceptance, including France, Finland, New Zealand and Denmark. Therefore, the proposal by the Canadian government is not new, and presents the fewest barriers for Canadians to receive federal benefits. But there is a risk that errors will increase: information not collected by the CRA, such as a mid-year change in marital status, will not be entered unless the taxpayer does so before their return is automatically filed.
Moreover, where countries have adopted automatic tax filing, their success has been attributed to a number of pre-existing factors, including high-integrity taxpayer identifiers, a comprehensive system of third-party reporting, a high degree of automation among information suppliers, and a compatible legislative framework, including limited non-standard deductions.
Canada already has high-integrity tax identifiers (i.e., social insurance numbers). However, we are lacking in other areas. To ensure people receive federal benefits, particularly low-income individuals, two specific areas of complexity may be addressed.
The first is self-employment-related deductions. Many people with otherwise simple tax returns are self-employed. However, due to the complexity of the deductions involved, it is unlikely that pre-filled tax forms can be made available and be accurate for these individuals. A choice could be offered between a standard business deduction that can be applied to pre-filled tax forms and an itemized deduction that can be inputted by the individual using receipts.
The second is medical expenses, which individuals with otherwise simple tax returns may wish to claim. Medical expenses, claimed through the medical expense credit, can be used to reduce taxes owing. However, medical expenses are currently not reported by a third-party provider. Instead, the individual must manually input them based on retained receipts. If third parties are required to report medical expenses, the CRA can include this information in pre-filled tax forms. This pre-filling improves accuracy, reduces the complexity of completing tax returns and makes it easier to access relevant tax credits.
While I have identified these two areas of potential reform, Canadian tax law is complex. By simplifying deductions and credits, and expanding third-party reporting requirements, automatic tax filing could extend to more Canadians with otherwise simple tax returns. It could also reduce potential errors. Together with better access to financial products and simplified qualification for supports such as CDB, these changes would help more eligible Canadians receive federal benefits.”
The move to automatic tax filing is welcome news because it may help low-income Canadians receive the government benefits they are entitled to. Budget 2025 provides $71 million over five years to automate tax filing, with rollout beginning in the 2026 tax year and scaling thereafter. Successful implementation will also depend on consultations and the passage of the proposed legislative amendments that would allow the CRA, in certain cases, to file on behalf of eligible non-filers.
Nonetheless, barriers remain, particularly for people with limited digital and financial resources. Moreover, the complexity of qualifying for the Canada Disability Benefit will continue to hinder access to federal benefits unless rules are loosened and eligibility is made more automatic.
To remove these deterrents and move toward a more fulsome system of automatic tax filing, the government should continue to modernize tax legislation, expand third-party reporting requirements, standardize tax credits, and reform eligibility requirements for federal benefits, particularly where such changes will enhance the pre-filling of tax forms for low-income individuals. Canada has taken an important first step to modernize its tax filing regime, but there is room for improvement.
