Reminder: Accountant-client privilege does not exist

In the course of a tax appeal, the taxpayer and the Canada Revenue Agency (CRA) are entitled to inspect certain documents that are in the other party's possession, control or power and that are relevant to any matter in question in the appeal.¹ An exception to this is any document that is subject to solicitor-client privilege. Generally, documents produced by taxpayers' accountants must be disclosed.

Solicitor-client privilege is a fundamental right in Canada and applies to communications between a lawyer and client for the purpose of seeking or giving legal advice that are intended to be confidential. Solicitor-client privilege allows lawyers and clients to communicate openly about a client's legal affairs to ensure the lawyer is fully informed of the client's circumstances and can properly advise the client. When a communication is privileged, it need not be provided in response to a demand for it from any third party, including the CRA, and including in the course of litigation (unless the client waives it or an exception applies).

Solicitor-client privilege is unique to the legal profession. There is no similar right applicable to communications between clients and other professionals, such as accountants. However, it is possible that an accountant's communications are privileged when they act as a representative or agent for a client in obtaining legal advice from a lawyer or are retained to assist the lawyer in providing legal advice.² Lawyers often work co-operatively with accountants in the course of advising their mutual clients. In such instances all parties must be sensitive to which communications are privileged and which are not, and when solicitor-client privilege might extend to communications between a client's accountant and their lawyer.

The Tax Court of Canada's recent decision in Coopers Park Real Estate Development Corporation v. The King, 2024 TCC 122 (Coopers Park) is an important reminder of the scope and limitations of solicitor-client privilege. In Coopers Park, the CRA reassessed the appellant on the basis that the general anti-avoidance rule applied to certain transactions (the Transactions) undertaken by the appellant in 2004 and 2005 to become part of another group of companies (the Concord Group). Following examinations for discovery, the CRA asked further follow-up questions of the appellant, to which the appellant provided answers that were unsatisfactory to the CRA or refused to answer at all.

As a result, the CRA filed a motion with the Tax Court seeking an order requiring the appellant to, inter alia, produce 19 documents to the CRA, which the appellant opposed on the basis that the documents were privileged. Since the appellant did not provide supporting evidence of its claims (such as viva voce or affidavit evidence), the Tax Court had to determine whether each document was privileged based solely on the face of the document.

The Tax Court concluded that only two documents were subject to solicitor-client privilege. The first document was an engagement letter (the Engagement Letter) which established the relationship between the Concord Group, their tax lawyers (the Tax Counsel) and the parties that would be involved as agents to assist in the provision of legal advice, namely, the Concord Group's accountants (the Accountants) and the Concord Group's legal counsel (the Legal Counsel). Because the appellant became a part of the Concord Group as a result of the Transactions, out of an abundance of caution, the Tax Court determined that the portion of the Engagement Letter that described the legal advice with respect to tax matters that was to be provided to the Concord Group was privileged.³ The second privileged document was an email chain between the Concord Group, the Accountants and other lawyers exchanging comments in the course of the lawyers' preparation of a legal agreement.

All of the remaining documents were not considered by the Tax Court to be privileged. Some of these documents consisted of letters and emails by and among the Concord Group, the Accountants and the Legal Counsel that did not contain legal advice, the passing of legal advice or an indication that it is part of the communication to obtain legal advice. Most importantly, other documents consisted of memos and letters authored by the Accountants that fell outside of the scope of the Engagement Letter. Specifically, the Tax Court determined that the Accountants were not providing factual or other information to Tax Counsel as agent for the appellant, or reproducing legal advice provided by Tax Counsel. Rather, the Accountants were providing independent legal advice to Legal Counsel.⁴

Key takeaways

• Engagement letters among lawyers, non-lawyers and their mutual clients must be carefully drafted. Where a non-lawyer (such as an accountant) seeks and obtains legal advice as agent for another party (such as a taxpayer), all communications should make reference to the agency relationship. Additionally, where a lawyer seeks and obtains information from experts and other advisers, including accountants, to facilitate the provision of legal advice to the client, all communications should similarly make reference to this agency relationship.
• Where a taxpayer needs the expertise of both a lawyer and an accountant for a certain transaction or series of transactions (or to advise as to tax position(s) or filing(s)), the lawyer should be tasked with drafting memos or letters describing the steps needed to implement the transactions(s) (or to support the position(s) or filing(s)) in order to benefit from solicitor-client privilege.
• Documents subject to solicitor-client privilege should be clearly marked as such and kept separate and apart from all other documents. Further, claims that certain documents are subject to solicitor-client privilege should always be supported with affidavit or other evidence. Otherwise, the court must make the determination on the face of the document, and it is not always obvious to a court that a document contains privileged information. For example, even the accounting records of a lawyer might be maintained in a manner that could reveal the litigation strategy adopted by a taxpayer. The CRA may be attuned to this subtlety, but a court might not without an affidavit. This difficulty was noted by the Supreme Court of Canada in Canada (Attorney General) v. Chambre des notaires du Québec.⁵

For any questions about this topic, reach out to the authors Paige Donnelly and Brian Kearl.

1. Rule 85 of the Tax Court of Canada Rules (General Procedure). ↩
2. Redhead Equipment v Canada (Attorney General), 2016 SKCA 115; Susan Hosiery Ltd. v Minister of National Revenue, [1969] CTC 353 (QL) (Ex Ct). ↩
3. The rest of the Engagement Letter was not privileged because it only outlined the relationship between the Tax Counsel, the Concord Group, the Accountants and the Legal Counsel. ↩
4. Only lawyers and paralegals licensed under any one of the provincial or territorial regulatory bodies governing legal professionals (such as the Law Society of Ontario) are allowed to practice law and provide legal services. The decision does not explain how or why the Accountant was able to provide legal advice in this case. ↩
5. 2016 SCC 20, at paras. 74-75. ↩