Category Archives: Solicitor-Client Privilege

CRA, Taxation, and Solicitor Client Privilege – Sas Ansari

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CRA, Taxation, and Solicitor-Client Privilege

Canada (National Revenue) v Thomson2016 SCC 21

For a summary of the FCA decision see HERE

Companion Case: Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20

This was a unanimous judgment of a seven (7) member court delivered by Wagner and Gascon JJ.  At issue was whether accounts receivable of a lawyer are immune from production to the CRA on the basis of solicitor-client privilege.

The Supreme Court of Canada held that Parliament expressly intended to exclude Accounting records of a lawyer from the scope of privilege. Its very purpose is to disclose what would otherwise be confidential information (para 3).  However, the exemption is invalid as applied to lawyers and notaries because it violates s 8 of the Charter.


The CRA, in the course of an audit or enforcement action, used its broad powers to require information and documents relating to a particular taxpayer.  The Income Tax Act defines “solicitor-client privilege” to expressly exclude “an accounting record of a lawyer”.  The Minister argued that this exemption means that a lawyer can be compelled to produce accounting records, while the taxpayer argued that the records are privileged.  The taxpayer was asked to provide information about his accounts receivable, but only produced the balance owing and no further details claiming privilege.

The CRA applies for a compliance order pursuant to 231.7. The FC concluded that the ITA definition is a valid abrogation of privilege in regards to accounting records.  The FCA held that notwithstanding ITA s 232(1), privilege can attach to individual documents and to client names contained therein.


The self-reporting and self-assessing system of income taxation in Canada relies for its integrity on broad powers granted to the CRA to verify the accuracy of returns and to take collection action.  ITA s 231.2(1) allows the Minister to require the taxpayer or a third party to provide “any information or additional information, including a return of income or a supplementary return” or “any document” that the Minister deems necessary to achieve the purposes of the ITA.

When the CRA send a requirement to a taxpayer or a third party pursuant to 231.2, it may by summary procedure in 231.7 apply to a judge of the Federal Court obtain an order for the recipient to produce the documents in question. The FC judge may make the order if satisfied that “the information or document is not protected from disclosure by solicitor-client privilege within the meaning in subsection 232(1).  The party against whom the order is sought must prove to the FC judge that the document falls within the ITA definition of solicitor-client privilege to prevent disclosure.

The SCC reviewed the reasons of the FC and the FCA before conducting its own analysis.  The SCC began by reviewing the nature of solicitor-client privilege in Canada.  The Court noted that solicitor-client privilege is not merely an evidentiary rule but a rule of substance that is a principle of fundamental justice (para 17) – Foster Wheeler Power Co. v. Société intermunicipale de gestion et d’élimination des déchets (SIGED) inc.2004 SCC 18Lavallee, Rackel & Heintz v. Canada (Attorney General)2002 SCC 61Maranda v. Richer2003 SCC 67Solosky v. The Queen[1980] 1 S.C.R. 821; Descôteaux v. Mierzwinski[1982] 1 S.C.R. 860Canada (Attorney General) v. Federation of Law Societies of Canada2015 SCC 7.

The obligation of confidentiality is necessary for the preservation of the lawyer-client relationship which, in turn, is indispensable to the effective operation of Canada’s justice system (para 17).  Both communications and the facts connected with that communication (eg bills of account) are presumed to be privileged absent evidence to the contrary and irrespective of the context (para 19).  Legislation that purports to limit or infringe on solicitor-client privilege will be interpreted restrictively (para 24) unless the text, context, and purpose of the provision do not allow a restrictive interpretation as is the case with the ITA provision at issue (para 33).

The SCC stated that Parliament lacks the ability, through clear and unambiguous language, abrogate solicitor-client privilege, as this would be a violation of section 8 of the Charter where the information the government could obtain exceeds what is absolutely necessary for the administration of the ITA (para 35).  The ITA requirement scheme, as applied to lawyers and notaries, violates section 8 of the Charter in a manner that cannot be saved under section 1.

The court went on to provide guidance in the event of an amendment by Parliament to the disclosure provisions of the ITA.  It noted that privilege belongs to a client and can only be waived by a client.  A court faced with the question of privilege must afford the client affected with the opportunity to assert that privilege.  This cannot be done by a court acting alone, but rather the clients must be notified when a court is considering making an order that might result in the disclosure of privileged information and be given the opportunity to decide whether to contest the state’s request for disclosure and an opportunity to make submissions to that effect (para 40).

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Solicitor Client Privilege and Requirements – Accounts of the Lawyer

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Solicitor-Client Privilege and Requirements – Accounts of the Lawyer

MNR v Duncan Thomson, Leave to appeal to SCC granted March 13, 2014, Docket 35590

The SCC granted the application for leave to appeal but dismissed the application for leave to cross-appeal from the decision of the FCA, 2013 FCA 197. The summary provided by the SCC reads:

The respondent is a lawyer who is the subject of enforcement proceedings pursuant to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).  The Canada Revenue Agency (CRA) issued a Requirement seeking information and documents pertaining the respondent’s income and expenses, and assets and liabilities, including a current accounts receivable listing.  The respondent provided some, but not all, of the information set out in the Requirement.  The CRA subsequently found that he had provided no details regarding his accounts receivable other than a total balance owing.

The respondent challenged the Requirement, making solicitor-client privilege the focus of his objection. He sought a determination of whether s. 231.2(1) of the Income Tax Act can be interpreted, applied or enforced so as to require a lawyer who is the subject of enforcement proceedings by the CRA to divulge information about his clients, information which he argued is protected by solicitor-client privilege.  He also alleged that the Requirement was akin to an unreasonable search or seizure and thus was contrary to s. 8 of the Canadian Charter of Rights and Freedoms.

The FCA had concluded:

[68]                                As announced at the outset of these reasons, I propose to partially allow the appeal although, as did the Judge, I dismiss all of Mr. Thompson’s arguments.  In my respectful view, however, the Judge’s order was premature with respect to the accounts receivable listing. Once he had decided that Mr. Thompson’s position on that issue could not stand, the Judge had to take the appropriate steps to verify whether solicitor-client privilege protected any of Mr. Thompson’s clients individually. The appellant had built his case on an erroneous understanding of the law of solicitor-client privilege. As a result, he had made the blanket statement that clients’ names are always privileged. On a proper understanding of privilege and the construction of the statutory provisions and rules at play, it is possible that some of the appellant’s clients’ names are protected by solicitor-client privilege. If that is the case, these clients ought to have the opportunity to assert this privilege, and Mr. Thompson should be given the chance to lay the proper evidentiary foundation on their behalf.

[69]                                There is no specific obligation on a lawyer to advise a client when asserting a right on his or her behalf, when this right is in jeopardy. That being said, provincial law societies impose general obligations on lawyers, or make recommendations to lawyers, which suggest that the appellant should be asserting and pursuing the claims of solicitor-client privilege after having informed his clients and having obtained their instructions in this regard.

[70]                                With respect, I find that the Judge, as guardian of the law, should have fashioned a remedy addressing the critical issue of privilege before making his Order. The Act provides for the compliance order to be made by a Judge ensuring enough flexibility and discretion for him or her to remain the protector of the rights attached to solicitor-client privilege.

[71]                                As he did not fashion such a remedy, I propose to return the file to the Federal Court for a new hearing, on the question of the accounts receivable listing. Mr. Thompson may then have the opportunity to get his clients’ instructions and, on the basis of these reasons, may file new sworn affidavits explaining why individual clients’ names are privileged, if in fact this continues to be the case. I will not impose a time limit to do so and leave it up to the Federal Court to set the timelines for the parties to exchange further affidavits or materials. However, I should add that the clients on whose behalf the appellant is claiming privilege should produce their own affidavits explaining the history of their accounts. Copies of such affidavits should be served on the respondent, with clients’ names redacted.

[72]                                As for the rest of the missing information and documents, as listed in Ms. Maria Van Dyk’s affidavit (appeal book, volume 1, page 35 and ff.), the Judge’s Speaking Order stands. The missing information and documents shall be produced as ordered and in an unredacted version within thirty (30) days of the judgment to issue. For the sake of clarity, the relevant paragraphs of Ms. Van Dyk’s affidavit describing the missing information and documents are reproduced in an Annex to these reasons.

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