Two recent decisions by the Supreme Court of Canada1 considered demands for information made to lawyers and notaries issued by the Canada Revenue Agency (CRA). Information that is subject to "solicitor-client privilege" is excluded from such demand. However, specifically excluded under the Income Tax Act (Canada) (the Tax Act) from the scope of solicitor-client privilege is an "accounting record of a lawyer."  The exclusion would thereby authorize the CRA to demand accounting records of a lawyer.

These recent decisions confirmed that the Tax Act exclusion of accounting records from the scope of information protected by solicitor-client privilege is contrary to the unreasonable search and seizure provisions of section 8 of the Charter and consequently lawyers and notaries do not have to comply with such requests from the CRA.

The demand for information in the Quebec case arose out of requirements sent to notaries in Quebec for information or documents relating to their clients, for tax collection or audit purposes. The Supreme Court held that the requirement to provide information scheme of the Tax Act constituted an unreasonable search and seizure contrary to section 8 of the Charter  because it fails to ensure that the solicitor-client privilege remains as close to absolute as possible, and is only interfered with if absolutely necessary.

The Supreme Court found that the exception to solicitor-client privilege in the Tax Act for accounting records contained several defects, namely it failed to provide notice to taxpayers that their information was at risk of being disclosed and with an opportunity to object to such demand. Further, it placed the burden of protecting the privilege solely on the notaries and lawyers (with exposure to penalties for failure to comply). The Court held that compelling disclosure of the information being sought was not absolutely necessary and that no measures had been taken to help mitigate the impairment of professional secrecy. The Supreme Court concluded that solicitor-client privilege is a principle of fundamental justice and an intrusion must only be permitted if doing so is absolutely necessary to achieve the ends of the enabling legislation.

In the Thompson case, the CRA sent a requirement to provide information to a lawyer, requesting his accounts receivable information, including the names of clients. Thompson refused the requirement, claiming solicitor-client privilege. The Court acknowledged that Parliament's intention to exclude "an accounting record of a lawyer" from the scope of solicitor-client privilege in s. 232(1) of the Tax Act  is clear and unequivocal. However, since the Court concluded in the companion Quebec case that the accounting record exception was unconstitutional, Thompson was not required to comply with the requirement sent by the CRA.

The Court noted that it is possible that Parliament will amend the Tax Act to remedy the constitutional defects of the requirement scheme. Also, there are other situations in which courts could be asked to determine whether certain information requested by the CRA is covered by solicitor-client privilege and, if they find that the privilege does not apply, to order that the information be disclosed.

As a result, the Court commented on the appropriate steps required to safe-guard a taxpayer's claim of privilege. The Court affirmed that solicitor-client privilege can only be waived by a client. It is the client and not the lawyer who must be given an opportunity to assert the privilege, and a court must act to facilitate the client's ability to do so. Also, the Court stated that in order to properly afford clients the opportunity to raise their right to solicitor-client privilege, they must be notified when a court considers making any order requiring the disclosure of what might be privileged information. They must also be afforded the opportunity to decide whether they wish to contest the disclosure of the information requested by the state, and if they do wish to do so, they must be permitted to make submissions in that regard on their own behalf.

The Court noted that should Parliament choose to modify the existing Tax Act disclosure scheme in order to remedy its constitutional defects, a court assessing a request for access to presumptively privileged information will need to ensure that the clients whose information is being sought can participate in the process of asserting the protections that apply to them.

Footnotes

1 Canada (A.G.) v. Chambre des notaires du Québec, 2016 SCC 20 and Canada (National Revenue) v. Thompson, 2016 SCC 21

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