In an important decision (Coopers Park Real Estate Development Corporation v. HMK, 2024 TCC 122) released in September 2024, the Tax Court of Canada ordered the production of an accountant’s client related documents and (for the most part) dismissed a claim of solicitor-client privilege made by a taxpayer.
The decision is another stark reminder that tax strategy and planning documents are difficult to protect from disclosure in tax controversy. An accountant is almost always the lynchpin to tax planning and tax preparation. Since an accounting firm is uniquely positioned and holds all important financial and tax information, an order to produce accountant’s files is a real and substantial obstacle in tax planning.
Summary of the tax court decision
The Department of Justice (on behalf of the Canada Revenue Agency and His Majesty the King) brought a motion to require the disclosure of a portion of an accountant’s files. In the motion, the taxpayer took the position that communication between, and including, accountants and lawyers were legally privileged because the accountants were “acting as agent for the [taxpayer] in communication with counsel.”
In their decision, the Tax Court reiterated that “Solicitor-client privilege applies to a communication between solicitor and client that entails the seeking or giving of legal advice, and that is intended by the parties to be confidential… There is no accountant-client privilege… However, solicitor-client privilege applies where an accountant acts as a representative or agent for a client in obtaining legal advice from a solicitor.”
The Tax Court held that, in this motion, the taxpayer had not tendered sufficient evidence to allow the court to make a determination as to whether or not the accountants acted as agents for the taxpayer and if solicitor-client privilege could be extended along the communication continuum to apply to the communication documents in dispute.
As a result, the Tax Court ordered the production by the taxpayer of some of the accountant’s files, including:
- A partially redacted engagement letter
- Letters and emails
- Strategy documents with diagrams and handwritten notations
- Certain documents that contained “the hallmarks of a legal opinion” but fell outside the scope of the engagement letter involving the taxpayer and its lawyers.
The court did order that an email chain involving a law firm contained privileged communication because the emails were exchanged in contemplation of the drafting of a legal agreement.
Takeaway
If a taxpayer or accountant anticipates interacting with tax authorities at any level of tax controversy, (municipal, provincial, or federal, via routine desk audit, full audit, at objections, or tax appeals), careful consideration must be given as to the nature of communication. Obtaining early tax controversy legal advice before putting pen to paper (or fingers to keyboard) is supremely important to protecting the confidentiality of legal tax advice.
Our Tax Disputes Resolution team has privilege specialists who can assist with any tax controversy privilege questions you may have.
