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Protecting solicitor-client privilege

The CBA supports a fairer tax system, says President Stephen Rotstein, but not at the expense of this crucial principle for the legal profession as a whole.

CBA President Stephen Rotstein
CBA President Stephen Rotstein

The Canadian Bar Association supports the federal government’s efforts to make the tax system fairer, President Stephen Rotstein writes in a letter to Deputy Prime Minister and Minister of Finance Chrystia Freeland. Provided lawyers can fulfil their duties to their clients with undivided loyalty.

Rotstein’s letter is in response to February 2022 draft legislation pertaining to reportable and notifiable transactions. If adopted as currently drafted, he says, the proposed legislation “will compromise solicitor-client privilege.” This principle is crucial for the legal profession as a whole, as recognized by the Supreme Court of Canada in R v McClure, he adds.

Currently, subsection 237.3(2) of the Income Tax Act imposes information reporting obligations to every “advisor” entitled to certain fees in respect of a reportable transaction. This can include lawyers. Failure to comply is liable to a penalty. Among other measures the February draft legislation proposes to expand the definition of reportable transaction, increase penalties for failure to comply and accelerate the deadline to report to the CRA.

Existing legislation provides, at subsection 237.3(17), that a lawyer (defined to include a Qu├ębec notary), “who is an advisor in respect of a reportable transaction is not required to disclose in an information return in respect of the transaction any information in respect of which the lawyer, on reasonable grounds, believes that a client of the lawyer has ‘solicitor-client privilege,’” the CBA letter says.

The draft legislation imposes reporting obligations on advisors, including lawyers, who advise or assist in the notifiable transaction.

As the CBA letter explains, it is common for accountants or other third-party advisors who work with lawyers in providing transactional advice to clients to be in possession of information that is protected by solicitor-client privilege. The draft legislation, at subsections 237.3(17) and 237.4(15) “with respect to information protected by solicitor-client privilege only appears to apply with respect to the disclosure obligation of lawyers, and not to other advisors or to taxpayers themselves.”

Excluding solicitor-client information from information reporting measures would not prevent the Canada Revenue Agency from collecting the information it needs. For instance, Canada could adopt the approach used in the UK and Ireland whereby the reporting obligation, where there exists a privileged solicitor-client relationship, shifts to the client. “By contrast,” the CBA letter warns, “purporting to compel the disclosure, under threat of penalty, of solicitor-client privileged information by persons who are validly in possession of such information is arguably unconstitutional because it undermines one of the most fundamental aspects of our legal system and ultimately, the public’s confidence in its ability to obtain comprehensive legal advice in relation to their tax affairs.”

The CBA believes a fair tax system benefits all Canadians, but not at the cost of putting solicitor-client privilege in peril or placing lawyers in a situation where they are unable to fulfil their duties to their clients with undivided loyalty.