Wednesday 18 March 2009

Caution on Web Software Certified for NETFILE

Most of us Canadian taxpayers probably consider Canada Revenue Agency's NETFILE service, which allows electronic filing of annual income tax returns and a much quicker turnaround on refunds, a great convenience. However NETFILE has a significant weak spot about which folks should be wary.

The CRA certifies a number of software packages developed by private companies for use with NETFILE - listed on this page. What exactly does CRA's "certification" mean?

Certification does NOT guarantee that the package will correctly calculate your taxes! In testing all the certified web versions, about which I will be posting my assessment in the next day or so, I found large differences in the amount I owe the government. Of the ten packages, three gave the same result, another two matched each other but were different from the first three, three more gave unique results and the last two I gave up on. The calculation of taxes I supposedly owe ranged from $810 to $1680. I will be discussing how I think this comes about in my review but given that they cannot all be correct, the conclusion is that only a few certified packages actually do calculate taxes correctly.

Note the wording on CRA's webpage: ""Certified" tax preparation software or "certified" tax preparation Web application means that the developer of the tax package has gone through a process with the CRA to establish that their product is compatible with the CRA systems." Certification fundamentally only ensures that the data can successfully be transmitted, that line 485 coming out of the tax prep package will be received as line 485. The fact that line 485 may be garbage is not verified.

It is interesting to note in this context the report last August saying the CRA finds taxpayers using NETFILE are prone to cheating. Maybe taxpayers are just confused and misled by the chosen NETFILE package? Maybe they just try different programs and use the one that gives the lowest tax payable?

I asked the CRA about what checking they do on the package calculations before certifying and an official spokesperson (kudos to them to reply to a lowly blogger) sent me this by email:

"The CRA’s NETFILE certification process is the same for each product tested and includes testing to ensure that the data can be successfully saved and transmitted in the proper “.tax” format and is compatible with our systems.

It also includes testing for the most common tax calculations. However, it is impossible to test all combinations and calculations on all possible scenarios. If a discrepancy is discovered after certification the software developer is contacted and must correct his product."
Not enough testing is done it seems. I don't think my situation is especially unusual or complicated and I spent a lot of time ensuring I entered the data the same way with each package.

Amusingly, the package vendors all warranty that their calculation will be correct "if you enter the data correctly". Maybe they would still claim I did not do so. If the package's guidance is unclear and confusing, resulting in someone inputting incorrectly, legally it's still the taxpayer's problem. Certification is no assurance of package help and guidance quality, which can be misleading, absent or wrong. The CRA disclaimer that it does not check for spelling or grammar doesn't go near far enough - it needs to warn that package help and guidance may differ significantly, possibly resulting in an incorrect return. CRA should also add the warning it sent me in the quoted email above.

Right now I can identify with 19th century merchant John Wanamaker when he said, "Half the money I spend on advertising is wasted, but I can never find out which half." Same goes with my choice of web tax package.

Update March 23: CRA has contacted me and is going to test the packages using my data. The ultimate referee will give me an answer, at least they promised to do so, and I will pass it along.


Anonymous said...

Wow. That's scary. And I wonder why no one found this out before.

Unknown said...

Looking forward to your comparison! Regards,

Brent Rockwood said...

As a programmer myself, I'm certainly familiar with bugs. They're bound to happen. I wonder, though, if CRA will still penalize/charge interest if you make a good faith effort to pay and the "certified" package is shown to be in error.

Joanne said...

Following a request from a concerned user, I just completed a review of a rather simple return where UFile's refund was less than that calculated by a competing product. UFile's calculation was correct, however. The other software product allowed the spouse's net income to be less than UCCB received.

Frog of Finance said...

I'll be very interested in seeing the results of your testing!

CanadianInvestor said...

Joanne, I've been narrowing down the differences between the packages but UCCB is not in question. I think I'm gonna throw down the gauntlet to the package providers to explain the difference. A tax bunfight, that would be fun, huh?

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