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CBA advocates for solicitor-client privilege

New trust reporting requirements do not require the disclosure of information subject to privilege.


Bill C-47, Budget Implementation Act, 2023, was recently tabled in the House of Commons with amendments on reportable and notifiable transactions sought by the CBA. First, an overly narrow definition of “solicitor-client privilege” is deleted from the Income Tax Act. Second, the new notifiable transactions regime will not apply retroactively. Finally, the revised legislation confirms that the reporting requirements do not apply if it is reasonable to believe that the information is subject to solicitor-client privilege.

The CBA had previously expressed serious concerns that the Income Tax Act amendments included in Bill C-32 and other legislation compromised solicitor-client privilege. CBA President Steeves Bujold wrote to the chair of the Standing Senate Committee on National Finance, to the chair of the House of Commons Finance Committee and to Deputy Prime Minister and Minister of Finance Chrystia Freeland to say that those amendments would not pass constitutional muster, given the jurisprudence from the Supreme Court of Canada.

Previously proposed changes to the ITA would have made third parties, such as accountants or other advisors who work closely with lawyers advising clients, subject to new reporting obligations. This would have meant that information covered by privilege but in the hands of accountants or other advisors would be subject to reporting obligations, making clients vulnerable by exposing the information they gave tot their lawyers on the understanding that it would be kept confidential.

While the CBA supports legislation designed to counter aggressive tax avoidance, money laundering and other criminal activities, it insists that these objectives be pursued without compromising the fundamental principle of solicitor-client privilege, a “quasi-constitutional right that has been repeatedly affirmed” by the highest court in the land, “as fundamental as the rule of law, access to justice and the proper administration of justice,” Bujold wrote.

In response to the CBA’s recommendation, the new legislation confirms that the reporting requirements will not apply if it is reasonable to believe that the information is covered by solicitor-client privilege.

New reporting obligations for trust accounts

The Fall Economic Statement Implementation Act, 2022, which received Royal Assent last December, codifies new reporting requirements for trust accounts. While a lawyer’s general trust account is exempt from the new requirements, client-specific trust accounts will be required to file annual tax returns.

The CBA remains concerned that these reporting requirements may infringe on solicitor-client privilege, place lawyers and their clients in a conflict of interest and impact the duty of confidentiality owed to clients. In addition, the proposed reporting obligations for client-specific trusts could impose costly reporting burdens on lawyers.

While our recommendation to exempt any trust account maintained by a lawyer or Quebec notary was not fully accepted, important amendments were made to address some of the CBA’s concerns.

Among those are that short-term trusts are exempt, that implementation of the new measures have been delayed by one year and, crucially, that the new trust reporting requirements “do not require the disclosure of information that is subject to solicitor-client privilege.”