AD-19-01 Audit Agreement and Waiver of Objection Rights Guidelines 2019-02-19

Binding nature of audit agreements recognized

An audit agreement is an agreement between the CRA and a taxpayer where the parties set out the terms under which one or more audit issues will be assessed based on a common understanding and interpretation of the facts, audit policy and law applicable at that time. …

…Rosenberg … addresses the binding nature of an agreement reached between the CRA and a taxpayer provided that neither party breaks their commitment to the agreement, and provided that the fact pattern relied upon in reaching the agreement does not change.

Binding audit agreement requires full disclosure and waiver

For the audit agreement to be binding, the taxpayer must:

• disclose all material facts in elections, returns, applications, and other submissions as applicable, related to the issue(s) dealt within the audit agreement;
• waive their right to object to the assessment of the issue(s) and provide a signed copy of the Waiver of Objection Rights to the CRA; and
• in some instances, agree to pay the resulting taxes, penalties and interest owing as a result of the agreed upon assessment within the timeframes specified in the audit agreement.

… The waiver is a statement voluntarily signed by a taxpayer, or an authorized representative, to the effect that the taxpayer gives up both the right to object to, and to appeal, one or more issues identified in the audit agreement and set out in the waiver. More specifically, subsection 165(1.2) of the Income Tax Act (ITA) and subsection 301(1.6) of the Excise Tax Act (ETA) restrict a taxpayer from objecting to the assessment of an issue where the right of objection has been waived in writing. Further, subsection 169(2.2) of the ITA and subsection 306.1(2) of the ETA restrict a taxpayer from appealing the assessment of an issue where the right of objection or appeal has been waived in writing.

Waiver signifies that no further recourse

The waiver must contain statements to the effect that:… the impact of … subsection 165(1.2) of the ITA or subsection 301(1.6) of the ETA … have been explained and are understood to mean that no further recourse to any authority with respect to the assessment by the CRA of the waived issues is available upon signing the waiver.

Recognition of Galway principle

Auditors cannot contravene provisions of the ITA or ETA in negotiating and finalizing an audit agreement. They must assess taxes on the basis of the facts as determined, in accordance with legislation and CRA policies. This means that audit agreements normally relate to subjective audit issues.

Taxpayer penalty or interest relief requests

Taxpayer relief requests are to be dealt with on their own merit separately and solely on the basis of the taxpayer relief provisions. Relief requests related to transfer pricing should be referred to the Transfer Pricing Review Committee.

Binding nature of audit agreements recognized

An audit agreement is an agreement between the CRA and a taxpayer where the parties set out the terms under which one or more audit issues will be assessed based on a common understanding and interpretation of the facts, audit policy and law applicable at that time. …

… Rosenberg … addresses the binding nature of an agreement reached between the CRA and a taxpayer provided that neither party breaks their commitment to the agreement, and provided that the fact pattern relied upon in reaching the agreement does not change.

Binding audit agreement requires full disclosure and waiver

For the audit agreement to be binding, the taxpayer must:

• disclose all material facts in elections, returns, applications, and other submissions as applicable, related to the issue(s) dealt within the audit agreement;
• waive their right to object to the assessment of the issue(s) and provide a signed copy of the Waiver of Objection Rights to the CRA; and
• in some instances, agree to pay the resulting taxes, penalties and interest owing as a result of the agreed upon assessment within the timeframes specified in the audit agreement.

… The waiver is a statement voluntarily signed by a taxpayer, or an authorized representative, to the effect that the taxpayer gives up both the right to object to, and to appeal, one or more issues identified in the audit agreement and set out in the waiver. More specifically, subsection 165(1.2) of the Income Tax Act (ITA) and subsection 301(1.6) of the Excise Tax Act (ETA) restrict a taxpayer from objecting to the assessment of an issue where the right of objection has been waived in writing. Further, subsection 169(2.2) of the ITA and subsection 306.1(2) of the ETA restrict a taxpayer from appealing the assessment of an issue where the right of objection or appeal has been waived in writing.

Waiver signifies that no further recourse

The waiver must contain statements to the effect that:… the impact of … subsection 165(1.2) of the ITA or subsection 301(1.6) of the ETA … have been explained and are understood to mean that no further recourse to any authority with respect to the assessment by the CRA of the waived issues is available upon signing the waiver.

International issues

Given that waivers do not extend treaty time limits and may not restrict a taxpayer's right to the mutual agreement procedure, they may not be of any assistance when dealing with cross-border transactions with a treaty country where the treaty provides a mutual agreement procedure to resolve disputes.

The relevant International Advisory Services Section Manager of the International Tax Division must be consulted in all cases where an audit agreement is being considered for a transfer pricing issue.