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David Rotfleisch on Lessons for Canada Revenue Agency (CRA) from the Internal Revenue Service (IRS) & Advantages of NETFILE/e File Taxes Online: Processing Times Cut by 50%, Reduces Mistakes, Speeds Up Taxpayer Refunds – and Saves 200M Pieces of Paper Yearly

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On August 8, 2023, the Internal Revenue Service (IRS), which is the US equivalent of the Canada Revenue Agency (CRA) in Canada, announced a paperless processing initiative with the goal of “eliminating up to 200 million pieces of paper annually, cutting processing times in half, and accelerating refunds by several weeks.” According to IRS Commissioner Danny Werfel, the objective is to identify innovative methods in which the IRS may leverage technology to assist taxpayers and minimize mistakes arising from manual inputs in recognition of the antiquated processing infrastructure.

This program, which was implemented in August 2022 as a component of the Inflation Reduction Act, focuses on climate change and sustainable energy. During the 2024 filing season, American taxpayers will have the choice to electronically file all correspondence, non-tax forms, and notification answers under this plan. All paper-filed tax and information returns, as well as half of all paper-submitted communications, non-tax forms, and notification answers, are expected to be processed digitally by the IRS by 2025. In addition, the IRS plans to digitize as much as one billion old records in an effort to reduce storage expenses by around $40 million a year. Although electronically filed returns have been allowed since the IRS e-file became national in 1990, this new effort has been considered a “game-changer” for the IRS. It is anticipated by the IRS that approximately 95% of individual taxpayers will not have to deliver or provide document papers to the IRS any more.

The transformation of the tax filing system in Canada into a digital format

Canada began electronic filing using EFILE in 1993, after the introduction of the IRS e-file system. Since then, professional tax preparers have been the only ones able to file electronically. Nowadays, the majority of individual taxpayers use NETFILE to file their recent tax returns. Of the individual returns received by the CRA between February 7, 2023 and August 13, 2023, just 7.5% were not filed electronically. The COVID-19 epidemic accelerated the rising tendency of electronically filing, and this trend is probably here to stay. There will always be some taxpayers who must submit their tax returns on paper, though, until the CRA removes the onerous set of requirements. It is currently not possible to use NETFILE services for the following purposes: submitting returns for any tax year before to 2017, filing for bankruptcy in 2022 or 2023, non-residents and deemed residents, and filing for tax returns whose address is outside of Canada.

An unanticipated side effect of Canada’s growing embrace of paperless processing is increased difficulty for tax professionals and taxpayers. For example, unless certain legislative exclusions apply, tax preparers handling more than ten tax returns in a calendar year are required to submit tax returns electronically as of January 1, 2013. Furthermore, those who are not technologically proficient could find it challenging to complete the required tax forms and accompanying documentation.

The Canadian Automated Tax Filing Pilot Program

It has been determined by research that around 10% of Canadians do not submit their tax returns. The researchers calculated that the benefits to which these non-filers would have otherwise been entitled amounted to around $1.7 billion in 2015. In light of this, the 2023 federal budget indicated that the CRA will permit more Canadians to file their tax returns through the File My Return Service, as part of its ongoing efforts to reduce living expenses. When an invitation letter is received, Canadians with basic tax situations and lower or fixed income can use the File My Return service to auto-file their tax return over the phone. A new automated filing service in 2024 was also revealed in the 2023 budget, with the intention of assisting vulnerable Canadians who do not presently submit their taxes in order to ensure they receive the benefits to which they are entitled. No detailed details about the new service have yet to be released by the CRA or the federal government.

A comparison of the IRS Initiative and the CRA’s present processes indicates that establishing an organized strategy would increase efficiency.

The IRS paperless processing effort aims to increase efficiency by focusing on all elements of communication between the IRS and taxpayers. Although the IRS has not released any more information on the platform to be utilized, it is expected that the IRS will seek a centralized system to process tax and non-tax forms, correspondence, and other document submissions. A consolidated or centralized system lowers the possibility of duplication processing and backlogs. For example, the Tax Court of Canada website permits taxpayers to file papers with the court online through a single gateway as long as the documents do not include sensitive personal information. The CRA system now splits digital services into individual and business categories, with distinct sites for representatives. Without the assistance of knowledgeable tax professionals, small business owners may find it difficult to manage many tax accounts. Business owners may find it challenging to maintain their CRA online accounts and to complete their filing requirements, particularly if they operate several different companies.

Lessons from the IRS: Improving service shouldn’t exclude customer services
The growing popularity of remote employment has made it more challenging for taxpayers to use the CRA’s phone and in-person customer support services. The decision earlier this year by the federal government to lay off 1,800 personnel has only resulted in increased phone wait times. Callers typically have to wait far longer than the predicted wait time on the CRA website, despite the effort to enhance customer service by providing this information. In the absence of a callback facility, callers may have to wait for up to two hours while listening to classic music continuously on the phone. Certain taxpayers are required to speak with a representative over the phone or update their personal information. When the internet system is unavailable or undergoing maintenance during tax filing seasons, the call center becomes more crucial. In order to learn lessons from the IRS endeavor, the CRA ought to provide customer service additional resources and acknowledge the significance of offline alternatives to online services. The CRA will need to prepare for an increase in questions from taxpayers utilizing the new system, particularly with regard to the new automated filing service.

Pro Tax Tips: Staying Up to Date with CRA News!
The web portals and customer support system of the Canada Revenue Agency will be updated in the future. For average taxpayers, keeping up with the most recent changes and figuring out the most effective means of communication may be difficult and time-consuming. To stay up to date with CRA news and updates, please visit our website and follow us on social media. Please get in touch with our knowledgeable Canadian tax attorneys if you have any questions about your filing and reporting requirements to the Canada Revenue Agency or if you need help interacting with them regarding your tax-related issues.

Frequently Asked Questions

In what ways may I get in contact with the Canada Revenue Agency?

Over the phone: Individual taxpayers can reach the CRA’s General Enquiry line between 8 a.m. and 8 p.m. (local time) Monday through Friday and between 9 a.m. and 5 p.m. (local time) on Saturday. You may reach out to 1-800-959-8281 for help with electronic services and tax information for people. On the other hand, it is preferable to find the line that deals with specific difficulties if you have more detailed inquiries about your tax-related matters. For instance, you should call the automated service line at 1-800-463-4421 if you would want to apply for the Disability Tax Credit (DTC) via an automated system. To report tax issues pertaining to businesses, call the CRA at 1-800-959-5525.

Online: The CRA has developed an online chat facility where taxpayers can ask general, non-account-specific inquiries to a live CRA representative who can help you with personal income tax problems.

Our knowledgeable Canadian tax lawyers may also assist you in communicating with the CRA if you are being audited, unfairly reassessed, or accused of tax evasion.

Is There a Way for Me to File My Taxes?

Individual taxpayers generally have three options for filing their taxes: on paper, online, or over the phone (if encouraged to do so). But some persons might not be able to submit taxes electronically because of limitations set by the Canada Revenue Agency. You cannot submit taxes electronically, for example, if you are a non-resident or deemed resident of Canada.

Businesses can opt to file their taxes on paper or through the internet. It’s possible for a business owner to submit both personal and business taxes at the same time.

For further information or to discuss any issues you may have about previously filed tax returns, CRA reassessment, or future tax filing, please get in touch with our knowledgeable Canadian tax lawyers.

Disclaimer: “Only general information is provided in this article. Only as of the publishing date is it current. It might not be current anymore because it hasn’t been updated. It cannot and should not be relied upon to give legal advice. Every tax issue is unique to its circumstances and will not be the same as the scenarios in the articles. You should get in touch with a Canadian tax lawyer if you have any particular legal inquiries.”

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