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The end of the tax return?

Could the end of tax return preparation — or so-called “tax season” for accountants — really happen? Or to paraphrase Mark Twain, is the demise of the income tax return greatly exaggerated? Technology is an amazing thing. As governments continue to expand data collection and improve their use of technology, it is not beyond the realm of possibility that the tax return could evolve into something very different than it is today. So, while the income tax return certainly isn’t dead yet, its demise may be in the not-so-distant future.

In March 2015, the UK’s tax administrator, HMRC, released a discussion document titled Making tax easier: the end of the tax return. The document outlines a bold vision for all UK taxpayers, including small businesses, to have digital accounts. Given that HMRC has access to much data, the document outlines thoughts to make smarter use of that data with a plan to essentially eliminate the personal income tax return.

When I read the UK’s discussion document, I immediately turned my mind to Canada and the US. Surely if the UK has thought about this then many other countries must have thought about it too. Well, it turns out they have. In mid-January 2016, the Canada Revenue Agency (CRA) announced its Auto-fill my return program. My quick review of the program indicates that the CRA is at the early stages of developing its technology. What about the US? Well, the IRS appears to have big plans as well. The IRS has outlined its long-term plans under its Future State vision. Many hurdles still exist for the IRS to implement its plans but it is interesting nonetheless.

So, what does all of this mean for taxpayers and tax preparers? Well, it means a lot. Tax law is complicated and calls for simplification have not (yet) borne any meaningful fruit. However, tax return preparation should, in my opinion, be made easier than it is today. Accordingly, the implementation of tools to simplify the process is certainly welcome. One can debate the “Big Brother” aspect of data collection but the simple fact is that governments have always collected data and will continue to do so.  Maintaining the privacy and confidentiality of such data is critical and will obviously pose ongoing challenges for tax administrators around the world.

Where does this leave accountants who rely on tax preparation for a living? Well, get ready for significant disruption in that line of business. It is obviously coming.

Given the complexity of tax, there will always be a need for tax advisory services. Even with the possible elimination of the tax preparation and/or filing business, there is no doubt that many taxpayers will still need advice regarding their tax affairs. There is a distinction between tax preparation and tax advisory services that the general public may not understand. One of the frustrating aspects of providing tax advisory services in today’s environment is that anyone can call themselves a tax advisor or expert. The Canadian Tax Foundation recently explored the possibility of bringing a tax specialist designation to Canada, which would have imposed minimum standards in order to carry a tax specialist designation.  For reasons that are beyond the scope of this blog, the initiative stalled.

In my opinion, the public needs a simple way to distinguish between a tax preparer and a qualified tax specialist/advisor. We are on the frontline of seeing the carnage of poor tax advice, and it’s disappointing to often witness clients paying for “cleanup” services rather than engaging in positive proactive planning.

Other countries have started to introduce tax specialist designations. It is about time Canada does as well. The practice of tax is too complex and specialized to simply be buried within the confines of the broader accounting and legal professions.

With the possible elimination of the tax return, one of the consequences might be that many tax preparers will market themselves – even more so than today – as tax advisors/specialists to try and replace their lost revenues. Such an influx of purported tax advisors/specialists will make a tax specialist designation even more important for quality control of tax advisory services – obviously something the public deserves.

Rest in peace tax returns… we won’t miss you.