Tax audit? Think before waiving your rights

To smooth the tax audit process, taxpayers can agree with the Canada Revenue Agency (CRA) to waive their objection rights. But, before they do, taxpayers should fully understand what they’re giving up in return.

A longstanding administrative policy permits the CRA to ask taxpayers to waive their right to object to an assessment when an audit agreement has been signed. While taxpayers can benefit from this policy, they need to be aware of the full scope of their rights and options.

The CRA’s Communique AD-05-02B, The Audit Agreement and Waiver of a Client’s Right to Object outlines this policy.

An audit agreement is a document separate from the waiver of a taxpayer’s right to object. It sets out the terms, agreed to by the CRA and a taxpayer, for how one or more audit issues will be (re)assessed. A waiver of the right to file a notice of objection flows from, and relates to, an audit agreement on an issue-by-issue basis. It is a documented declaration that the taxpayer voluntarily signs, waiving the right to object to the audit issues identified in the document. No objections to, or appeals of, the resulting assessment can be filed once the waiver is signed.

To speed up a resolution of the audit, the CRA or the taxpayer may propose that the two parties agree on certain facts — such as the timing of an event, the value of a benefit or the fair market value of a property. Waivers are only granted related to facts and not for interpretations of law.

Clearly, resolving the situation in this way can be cost-effective for both the CRA and the taxpayer. Yet if taxpayers don’t fully understand the value of the right they’re giving up, the move could lead to another type of dispute.

To avoid this, the CRA’s policy requires that the tax auditor meet with taxpayers to make sure they understand, among other things, the right they’re giving up, the waiver’s financial impact and the advisability of obtaining professional advice. (While taxpayers may choose not to seek professional advice, they should clearly understand that they have that right.)

In short, signing a waiver can benefit taxpayers by helping to ease tax audits and reduce disputes. But taxpayers should be well informed about what they’re giving up in return and secure independent professional tax advice.

Keep the conversation going

I want to hear from you. Have you had experience with the CRA’s waiver process? How could the dispute resolution process be improved? You can keep the conversation going by posting a comment below.

CPA Canada’s Tax Blog is designed to create an exchange of ideas on tax policy and practice issues, and their impact on those who practice tax. Your comments can provide helpful input into the public interest advocacy positions developed by CPA Canada.

About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada