Accountants and Legal Privilege – Introduction
In the context of a tax appeal, both the taxpayer and the Canada Revenue Agency (CRA) have the right to inspect documents in each other’s possession, control, or power, provided those documents are relevant to the appeal.
However, documents protected by solicitor-client privilege are exempt from disclosure.
This privilege does not generally extend to documents produced by accountants unless specific conditions are met.
What is solicitor-client privilege?
Solicitor-client privilege is a fundamental legal principle in Canada that ensures open communication between lawyers and their clients for the purpose of seeking or providing legal advice.
It shields privileged communications from being disclosed, even in litigation, unless the privilege is waived or an exception applies.
This privilege is unique to lawyers and does not automatically apply to other professionals, such as accountants.
However, there are circumstances where an accountant’s communications may be privileged, particularly when they act as an agent to facilitate legal advice.
The recent decision in Coopers Park Real Estate Development Corporation v. The King (2024 TCC 122) highlights the scope and limitations of solicitor-client privilege and offers important lessons on managing privileged documents in tax litigation.
The Case: Coopers Park Real Estate Development Corporation v. The King
In Coopers Park, the CRA reassessed the taxpayer, alleging that the general anti-avoidance rule applied to certain transactions undertaken in 2004 and 2005 to integrate the taxpayer into another group of companies, the Concord Group.
During discovery, the CRA requested additional information, but the taxpayer’s responses were unsatisfactory or refused.
Consequently, the CRA sought a court order for the production of 19 documents, which the taxpayer opposed, claiming privilege.
The Tax Court of Canada had to evaluate whether these documents were privileged based solely on their content, as the taxpayer did not provide affidavit evidence to substantiate their claims.
The Tax Court’s Findings
General
The court determined that only two of the 19 documents were protected by solicitor-client privilege:
Engagement Letter
The court found that portions of the engagement letter describing legal advice on tax matters for the Concord Group were privileged.
This letter outlined the roles of the group’s tax lawyers, accountants, and legal counsel, clarifying that the accountants acted as agents to assist in legal advice.
Email Chain
An email exchange between the Concord Group, accountants, and lawyers preparing a legal agreement was deemed privileged, as it reflected communications in the course of seeking or providing legal advice.
The remaining documents were not privileged. These included:
- Communications between the accountants, the Concord Group, and legal counsel that lacked evidence of legal advice or an agency relationship;
- Memos and letters authored by the accountants, which were independent of the engagement letter’s scope and unrelated to the provision of legal advice.
Key Takeaways
Drafting Engagement Letters
Engagement letters among lawyers, accountants, and clients must explicitly reference agency relationships to clarify when a non-lawyer is acting as an agent for legal advice.
Role of Lawyers in Documentation
Where both legal and accounting expertise is required, lawyers should draft key documents to maximize the benefit of solicitor-client privilege.
Marking and Safeguarding Privileged Documents
Documents subject to privilege should be clearly marked and stored separately. Claims of privilege should be substantiated with affidavit evidence to avoid reliance on the court’s interpretation of the document alone.
Awareness of Subtleties in Privileged Records
Even accounting records, if revealing legal strategy, could be privileged. Taxpayers and their advisers must be vigilant in identifying and defending such privilege claims.
Accountants and Legal Privilege – Conclusion
The Coopers Park case serves as a critical reminder of the importance of properly identifying and protecting privileged communications in tax litigation.
Solicitor-client privilege is a powerful tool, but its application requires careful documentation, clear agency relationships, and robust supporting evidence.
Taxpayers and advisers should work closely with legal professionals to ensure compliance and mitigate risks during disputes.
Final thoughts
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