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SCC ruling ends demands for tax lawyer accounting records

The Supreme Court of Canada’s recent move to declare invalid a section of the Income Tax Act (ITA) that exempted lawyers' accounting records from solicitor-client privilege means that lawyers are no longer required to respond to the government's demands to release these types of files, Toronto tax lawyer David J. Rotfleisch tells

A pair of related decisions, Canada (National Revenue) v. Thompson and Canada (Attorney General) v. Chambre des notaires du Québec et Barreau du Québec, raised the issue of the requirement for lawyers and Quebec notaries to provide documents or information to the Minister of National Revenue under s. 231.2(1) of the ITA. This section excludes lawyers’ accounting records from the protection of “solicitor-client privilege.”

The respondents in the cases questioned the constitutional validity of the requirement to provide these documents, whether s. 231.2(1) may be interpreted in a manner that abrogates solicitor-client privilege, and whether the requirement constituted an unreasonable search or seizure contrary to s. 8 of the Canadian Charter of Rights and Freedoms.

In ruling that the exception contained in the definition of “solicitor-client privilege” in s. 232(1) is constitutionally invalid, the court writes in Thompson that: “Solicitor-client privilege has evolved from being treated as a mere evidentiary rule to being considered a rule of substance and, now, a principle of fundamental justice. An intrusion on solicitor-client privilege must be permitted only if doing so is absolutely necessary to achieve the ends of the enabling legislation.”

In Chambre des notaires du Québec, the court writes: “The exception whose effect is to exclude the accounting records of notaries and lawyers from the protection of professional secrecy and which is set out in s. 232(1) of the ITA also infringes the rights guaranteed by s. 8  of the Charter.”

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, “these two important tax-related cases both deal with the requirement for lawyers to release records to CRA pursuant to Income Tax Act subsection 231.2(1) demands.

“The result of the ruling is that lawyers do not have to respond to such demands to release their records,” he adds. “This now includes accounting records that were formerly not thought to be protected by privilege."

As Rotfleisch notes, "as Canadian tax lawyers we had always advised our clients that our accounting records were not protected from CRA by privilege, but I don't think that this was known by the general bar. This decision is excellent news for all Canadians since it buttresses solicitor-client privilege."

Ultimately, the SCC says, in its view, it is not appropriate to establish a list of documents that are prima facie protected by professional secrecy.

“Whether a document is protected by professional secrecy depends not on the type of document it is but, rather, on its content and on what it might reveal about the relationship of and communications between a client and his or her legal adviser,” says the court.

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