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Why you should file your taxes electronically (if you don't already)

The financial world is trying oh so hard to turn the page on paper.

The latest example is the Canada Revenue Agency's decision not to mail the T1 general tax package this year to people who prefer to file on paper. You'll have to obtain a tax form on your own if you reject the very convenient and sensible option of using computers and the Internet to file your taxes.

Producing and processing paper documents is way more expensive than handling electronic documents. That's why banks are trying hard to kill passbooks and deliver your account and credit card statements online. Brokers are doing the same for account statements, trade confirmation slips and prospectuses. In one of the meaner examples of paper avoidance, some utilities have started applying a surcharge to customers who want to receive bills in paper form rather than online.

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CRA says it mailed 3.6 million T1 packages to individual taxpayers last year. There are a few good arguments why the decision not to mail forms this year is completely defensible. For one thing, forms for the 2012 tax year will be available for pickup at Canada Post and Service Canada outlets, and by calling 1-800-959-8281. Second, CRA says it costs roughly four times more money to process a paper tax return than it does for one filed electronically. File electronically and help reduce the federal deficit.

There's also a wide variety of tax software products available to do your taxes, and cost isn't an issue because free returns are more available than ever before. A software firm called SimpleTax (simpletax.ca) has decided to work on a "pay what you want basis" for online returns, and there's also a long-standing free downloadable product called StudioTax (studiotax.com). Other tax software products may waive costs for people with incomes of $30,000 or less.

Worried about privacy? The real risk isn't with tax software, it's with the government itself. That's what we've learned from a couple of recent cases in which portable hard drives containing personal information related to federal government programs have been lost.

CRA reports that 1.3 million paper tax packages went unused last year. Someone obviously goofed in projecting demand, and a whole bunch of trees have paid the price. But long term, there's been a very definite trend of people chucking the paper return.

The 1990 tax year was the last where all returns were filed on paper. The market share for paper fell below half in 2006 and in 2011 it was 37.6 per cent. Three CRA programs have competed against paper – Efile for tax preparers, Netfile for individuals and Telefile, a phone-based service for individuals that has been axed after a decline in usage.

If only paper will do for you in completing your tax return, then one of your remaining options is to download the necessary documents directly from the CRA website. "The difficulty is that when you get into the tax package for your province, you have to know which items you need to download," said Cleo Hamel, senior tax analyst at H&R Block Canada.

Paper-only types can also buy tax software from the likes of H&R Block, UFile or Intuit's uber-popular TurboTax lineup, print their completed return and mail it to CRA. Ms. Hamel said all the calculations are done for you by the software, so errors are much reduced. Also, you may come across relevant tax credits and deductions you didn't know about.

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Buying tax software packages either in stores or online makes sense if you're going to do multiple returns. H&R Block's product costs $29.99 and lets you do up to 16 returns. The basic and standard versions of TurboTax cost $19.99 and $39.99, respectively, and offer eight returns, while UFile's standard edition costs $19.99 and offers eight returns. These products work best when you use Netfile to submit your tax return electronically over the Internet.

For one or two returns, the best value is in completing your return online and using Netfile. CRA is still updating its list of Netfile-certified tax websites at netfile.gc.ca, but you can ultimately expect to find more than a dozen options for Windows and Mac-based computers.

New for the 2012 tax year is SimpleTax, which is waiting on CRA Netfile certification. Jonathan Suter, one of the founders at SimpleTax, said offering no-charge returns is an attempt to address what he considers the No. 1 reason for not using tax software – cost.

"This is something we hope will get people's attention and maybe even shape the industry," Mr. Suter said. "People are going to be filing online in the future. That's where things are headed."

For more personal finance coverage, follow me on Twitter (@rcarrick) and Facebook (robcarrickfinance).

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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