Automatic tax filing could pave the way to a universal basic income in Canada

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Kourtney Koebel is an assistant professor at the Centre for Industrial Relations and Human Resources at the University of Toronto. Wayne Simpson is a professor emeritus in the Department of Economics at the University of Manitoba.

Earlier this month, Prime Minister Mark Carney announced that Canada will begin automatic tax filing in 2027, with a full rollout expecting to benefit 5.5 million individuals by 2029. This marks an important advancement for Canada’s tax-and-transfer system. Currently, many benefits earmarked for low-income Canadians go unclaimed, since those with low incomes are not legally required to file taxes. For instance, data from 2016 suggests that 10 to 12 per cent of Canadians do not file taxes, with roughly 20 per cent of Canadians below the official poverty line not filing.

The immediate benefits of this announcement are clear: low-income Canadians with relatively simple tax situations will now receive the benefits they are entitled to, including the Canada Child Benefit, the Canada Workers Benefit, the Guaranteed Income Supplement and the GST/HST refundable tax credit. But this move also opens up a more ambitious possibility: re-envisioning the design of benefit programs directed at low-income Canadians.

There has been interest in the concept of a guaranteed basic income (GBI) in Canada for decades. Yet critics have consistently pointed to a fundamental administrative barrier: if low-income populations have low tax-filing rates, how could a GBI distributed through the tax system as a refundable tax credit reach those with the greatest need?

This concern represents a major objection to GBI proposals in Canada. Indeed, without a solution to the non-filing problem, even the most generous GBI program would not be completely effective at getting income support to the poorest Canadians and fully reducing poverty. Automatic tax filing addresses this critique head-on.

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Objections then shift from whether a GBI could work administratively, to whether it is financially feasible – a recent proposal for GBI in Prince Edward Island demonstrates that a well-designed program is. Developed by economists, politicians at the federal and provincial levels, and public servants, the proposal offers important lessons for a national program.

The design is straightforward: the maximum guaranteed benefit is set at 85 per cent of the official poverty line (in 2022 dollars, the individual poverty line in PEI is about $22,649), with benefits reduced by 50 cents for every dollar of family income. Under this structure, the poverty rate among working-age Islanders would fall from 10 per cent to nearly 2 per cent, essentially eliminating deep poverty entirely. The net cost – approximately $100-million annually – could be shared by the federal and provincial governments and represents a modest investment for both governments.

What makes this proposal particularly innovative is how it addresses concerns that a GBI would be too expensive. By using the census family rather than the nuclear family as the administrative unit, the PEI proposal reduces the cost of a GBI program by nearly 40 per cent. Under this family definition, adult children living with their parents are considered part of the same family unit, unless they have their own spouse or children. This ensures benefits are better targeted to families living in poverty, rather than to young adults with low individual incomes who live in households with adequate family income.

This improved targeting not only reduces costs but also enhances poverty-reduction effectiveness and minimizes labour market impacts. Analysis suggests that total hours worked would decline by only 1.6 per cent – roughly half an hour per week per full-time worker. Some of these labour-market reductions reflect beneficial adjustments: individuals returning to school to improve training, parents spending more time with young children, or workers leaving exploitative employment situations.

Importantly, the PEI proposal shows that a GBI could be delivered through a federal-provincial partnership using the existing tax infrastructure. The federal government could establish the benefit structure, while provinces could supplement the federal benefit according to their own priorities, mirroring the current arrangement for income and sales taxes. This approach respects provincial jurisdiction while ensuring consistency and administrative efficiency, much like the harmonized sales tax.

As well, targeted programs for specific populations would continue to be provided: disability-specific supports, housing assistance and other in-kind services remain essential complements to any income-based program. As the PEI proposal recommends, existing social-assistance programs should be maintained to provide emergency relief for those experiencing unexpected income changes during the year.

The combination of automatic tax filing and a well-designed GBI represents a genuine opportunity to restructure Canada’s approach to income security. The PEI proposal – supported by all provincial parties – provides an innovative framework that could be adapted nationally, offering a realistic path toward meeting Canada’s poverty-reduction targets.

With automatic tax filing mitigating a key implementation barrier, the question is no longer whether GBI is administratively feasible, but whether we have the political will to pursue it.