Online Tax Filing: More Cheating or CRA Tightening the Noose?

Yesterday CBC published an article with the provocative title "Online tax filers more likely to cheat: report". The report refers to an internal Canada Revenue Agency review. Buried within the text of the article are two sentences, key in my view to separating the hype from the reality.
"Software users … demonstrate a significantly higher non-compliance rate as compared to non-software users," they concluded."
Then, "The agency also cautions that the definition of non-compliance is a tax-deduction claim that is rejected ..." by the CRA.

So the headline which brazenly accuses taxfilers of cheating can just as easily be stated as "CRA denies more expenses and deductions when you file online." One of the very first comments on the article on the CBC website is from someone who was asked to provide receipts and then had a claim initially denied, and only had it accepted after much arguing with CRA. One can imagine CRA applying stricter rules and being more prone to rejecting expenses when CRA knows that sending copies of receipts are not required to file online. Poor tax filers who have a claim rejected must ask themselves whether they really want to fight the bureaucracy for the sake of what might be a small claim and decide it isn't worth the effort, especially as it might cost them more in accountant's fees than the claim is worth. End result: the denied claim stands and CRA concludes that non-compliance rates are higher for online filers. It becomes a self-fulfilling prophecy!

What types of cheating exactly is CRA talking about anyhow? If you are among the vast majority who get tax receipts from an employer and who make an annual RRSP contribution, where is the opportunity to do the small cheating the article talks about? Political contributions? Medical expenses? I would guess it is rather amongst the self-employed who report their own revenue and calculate their own expenses, in which case the justification for an expense can become debatable.

Now, it would be naive to think that no taxpayers will push the limits and throw in dubious expenses, even ones they don't really believe themselves are justified. No doubt some cheating does take place.

At the same time, CRA never sees or knows about the expenses that other ultra-cautious people never report, but which may be legitimate.

Perhaps the solution is to play the CRA's game and to prepare the tax return using software then print it all out and send it on paper, receipts and all attached. Then they might find the extra costs of handling all the paper outweighs the lost tax revenue from online "cheating". Mind you, such net revenue vs cost calculations seldom drive decisions in government though they should.