Release date: January 18, 2016
Guest: Marc Vanasse
Running time: 8:40 minutes
In this episode of Tax Tracks, PwC’s Marc Vanasse discusses the purpose and use of a waiver (form T2029), during an audit by the CRA.
Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.
Hi, it’s Sharon Mitchell. Welcome to our “What if” podcast series that discusses various tax situations and issues with the Canada Revenue Agency.
Today we have Marc Vanasse, a partner who heads the Tax Services group in our Montreal office, and also leads our National Tax Dispute Resolution team. Marc regularly mediates tax disputes between CRA auditors and taxpayers and is experienced in various areas of Canadian tax in both the public and private sectors.
Thank you Sharon.
Marc, I wanted to talk today about waivers, because there is a lot of confusion about them. Can you explain what a waiver is for us?
Sure thing Sharon. It might help if we back up a bit to give it some context. Once a taxpayer files their tax returns, the CRA will generally assess the return without much review and issue the taxpayer a Notice of Assessment. However, the CRA has the ability to review the tax return in greater detail within what is referred to as the “normal reassessment period. After this date, unless the Minister can demonstrate misrepresentation or fraud, the taxation year is generally considered to be statute-barred.
However, it’s possible for a taxpayer to file a waiver using the prescribed form from the CRA which is form T2029, allowing the taxation year to be reassessed beyond the normal reassessment period. What’s important to note here is, once the normal reassessment period has expired, so has the ability of taxpayers to provide a waiver for that taxation year.
So Marc, what’s the benefit to the taxpayer? It seems like a waiver is more of a benefit to the CRA, to give them more time to audit.
Well that’s a good question Sharon. When I’m making a presentation on this topic, I often ask, by a simple show of hands, to the participants, whether they think the waiver process is for the benefit of the CRA or for the benefit of taxpayers. I am often surprised that most participants think that signing a waiver is solely for the benefit of the CRA. In fact the waiver of the normal reassessment period is intended to benefit the taxpayer and not the CRA.
Even CRA’s own internal policies recognize that the waiver is intended for the benefit of taxpayers. Pursuant to their own CRA Audit Manual, waivers are not to be requested by auditors for the sole purpose of providing additional time to conduct their own audit but rather, they should be requested solely to provide taxpayers additional time to make representations to the proposed audit adjustments.
Okay, so if I understand this correctly Marc, a waiver is for the benefit of the taxpayer, but when or how would this be applicable?
I’ll give you an example Sharon– say CRA is auditing corporation A and the CRA has requested documentation to try to support the adjusted cost base (ACB) of assets that were disposed of in a particular taxation year that’s under audit. The taxpayer knows the information is available but it will take some time to locate the documents. However, the taxation year is fast approaching the expiration of the normal reassessment period and the CRA is looking to proceed to a reassessment as soon as possible unless the documents obviously can be provided, and let’s say that’s in a couple of days. This is a situation where it would be very favourable to Corporation A to file a waiver with the CRA to allow additional time to locate the necessary documents to support the ACB. If they were to simply let the CRA raise a reassessment and then file a Notice of Objection once the documents were located, this would result in Corporation A incurring unnecessary costs and aggravations to deal with an issue that could have easily be resolved in the course of the audit. Therefore, although the waiver provides the CRA with additional time to raise a reassessment, it is clearly for the benefit of Corporation A to provide the said waiver.
So essentially, I understand now the purpose of the waiver is for taxpayers to say ‘please don’t assess me right now, I’ll sign a waiver and you can continue to do the audit.’
Well, that’s right Sharon. It gives taxpayers more time to provide additional information to the CRA to support a particular filing position and avoids a costly and time consuming dispute with the CRA.
But Marc, doesn’t this seem a bit dangerous to allow the CRA more audit time. Should the taxpayer be concerned that CRA would be digging up additional issues?
That’s a very good point Sharon. When a taxpayer has made a decision to provide the CRA with a waiver of the normal reassessment period, they have the ability to really limit the scope of the issues that they are waiving. They should never, and I say never, sign a blanket waiver that may have been prepared and provided to them by the CRA. If we went back to our previous example, Corporation A could provide a waiver that clearly specifies that the normal reassessment period is being waived solely in relation to determining the ACB of the disposed asset and the resulting gain or loss on the disposition of the asset. This would prevent the CRA from reassessing any additional issues after that normal reassessment period, unless of course they were able to demonstrate that there was misrepresentation or fraud.
In cases where there are more than one outstanding issue, it may be preferable that a waiver be provided for each individual issue that was raised by the CRA in their proposal letter.
Okay, so if a taxpayer can put parameters on the waiver can they also include the time period they want to allow the waiver to be in effect? You know, to essentially put a deadline on it?
Any attempt to include a time period on the waiver would invalidate the waiver Sharon. However, it is possible to revoke a previously filed waiver. A waiver may be revoked by filing a Notice of Revocation along with a copy of the previously filed waiver. The revocation becomes effective six (6) months after its filing.
Earlier we mentioned that taxpayers may wish to file a separate waiver for each issue under review by the CRA. Another good reason for doing this is filing separate waivers allows the taxpayer to revoke individual waivers as the issues are being resolved by the CRA.
It’s good to mention that each situation is different as to when a taxpayer may want to revoke the waiver; however, the key point to remember is that it’s always good practice to ensure that the waiver gets revoked once it’s no longer required. And that’s key here.
So Marc, are waivers only an issue when there is an ongoing audit by CRA?
It is possible that taxpayers may wish to file a waiver for a particular taxation year even if there was no ongoing audit at the time. I’ll give you an example. Assume a taxpayer may have realized that they forgot to include a number of deductions for a particular taxation year and they would like to amend tax returns for the year but the normal reassessment period is almost going to expire. The taxpayer may consider filing a waiver of the normal reassessment period for the particular taxation year in respect of the unclaimed expenses, which would allow the CRA to process the requested additional deductions in an otherwise statute-barred year.
Our tax dispute resolution team would be able to provide you with any input on whether a waiver would have to be filed in a situation where there was no ongoing audit but it may be advantageous for the taxation year to remain open for limited reassessments.
So Marc, is there ever a time that you wouldn’t want to provide a waiver?
Ah, definitely. Despite a clear policy on the use of waivers in the CRA’s Audit Manual, we do experience requests for waivers from CRA auditors that fall outside of this policy.
We recommend that any request by the CRA to provide a waiver should be discussed with a member of our tax dispute resolution team who can provide recommendation as to whether to provide, or not to provide a waiver, and any implications that this may have for the particular audit.
Ultimately, the taxpayer needs to understand what their rights are when it comes to waivers and decide the merits of filing a waiver, In other words, is there a benefit to them to allow additional time for representations versus going and filing a Notice of Objection.
Thanks for joining us today, Marc. I think your comments will add a great deal of clarity to the waivers process.
Well thank you Sharon it was a pleasure. And our tax dispute resolution team is there to Prevent where you can. Resolve when you have to. And obviously Litigate when you must.
If our listeners would like to speak directly with Marc and his Tax Dispute resolution team, or would like additional information please visit their website at pwc.com/ca/taxdispute.