A common oversight by taxpayers in GST/HST matters is the execution of unconditional waivers under subsection 298(7) of the Excise Tax Act (the “ETA”) (see also the functionally equivalent Income Tax Act (“ITA”) provisions at subsections 152(4)(a)(ii), (4.01)(a)(ii), and (4.1)). Often, these waivers are granted to the CRA without critically considering the risks, including the arduous process to revoke a waiver once granted. However, waivers can be an appropriate choice, provided the benefits and risks are weighed for the particular situation at hand.
Subsection 298(1) of the ETA provides for, among other things, a four-year limitation period for assessments made under section 296. However, CRA/Revenu Québec auditors are well-aware of this and will employ several strategies to get taxpayers to waive their rights. This is done through the waiver provision under subsection 298(7), which allows any person to waive the application of the limitation period. The approach taken by the auditor is typically to ask the taxpayer to provide a waiver to grant the auditor more time to consider the taxpayer’s documents and/or submissions. This is sometimes accompanied by a warning that the auditor will be “forced” to reassess the taxpayer immediately if no waiver is forthcoming (since the audit will not be finished before the expiry of the limitation period). The taxpayer is then instructed to complete and return Form GST145 (Waiver of the Limitation Period for Assessment).
This is a trap. Few taxpayers notice the qualifying statements in Part B of the form which specify exactly which reporting periods and — crucially — specific issues are subject to the waiver. Leaving either of these sections blank is a significant risk. Our practice has encountered several situations where a taxpayer grants a waiver but fails to properly specify the scope of the issues covered. In these situations, the auditor will sometimes uncover additional, unrelated issues to the current audit (e.g., additional types of transactions that were not previously under consideration), which the CRA is now permitted to assess.
However, even if the scope of the waiver has been set, there is a risk that the CRA may still assess on an ostensibly out-of-scope issue, leaving it to the courts to rule on its scope. Courts have found that waivers are “not a contract” and that the “surrounding circumstances” of the taxpayer’s fact situation — in addition to the waiver’s text — are relevant to determine scope (see Brown v. The Queen, 2006 TCC 381 (CanLII) at para 26). Fortunately, courts are less willing to overlook substantive, out-of-scope issues (see Honeywell Limited v. The Queen, 2006 TCC 325 (CanLII) aff’d 2007 FCA 22), compared to technical defects (e.g., a wrong entity specified – see Fagan v. The Queen, 2011 TCC 523 (CanLII)).
Another oft-forgotten piece of information is that subsection 298(8) requires a full six months of notice to the CRA before a waiver can be revoked — by filing Form GST146 (Notice of Revocation of Waiver). Taxpayers may consider concurrently revoking the waiver at the time it is granted to encourage the auditor to complete the audit on a timely basis. As well, since there is no limit on the number of waivers a taxpayer can grant at a given time, it might also be prudent to grant waivers in respect of each individual issue, should the taxpayer wish to revoke one, but not all.
Despite these risks, subsection 298(7) waivers are not without merit. There is some persuasive value in assisting the auditor if they are pressed for time, in the hope that a good relationship will make them more willing to negotiate. The additional time for the auditor to continue the audit may also allow the taxpayer to make more complete submissions (potentially heading off an assessment), especially if the submissions require complex technical information that takes significant time to compile. Also, CRA collections actions will not begin until after any assessment is made, buying necessary time for the taxpayer to get their affairs in order. Seasoned practitioners will weigh each of these factors on a case-by-case basis against the risks before advising whether their clients should waive their rights.
Rob Kreklewetz is a partner at Millar Kreklewetz LLP and past chair of the CBA Commodity Tax, Customs, and Trade Section. Stuart Clark is an associate at the firm.