Canada: Legal Advisers' Files Are Not Archives For Tax Authorities, SCC Rules

The Supreme Court of Canada (SCC) released two decisions last week regarding the power of the Canada Revenue Agency (CRA) to demand production of information and documents, including accounting records, from lawyers and notaries in the context of audit or enforcement action against a client or against the legal adviser personally.

The SCC declared that the CRA's power to require production of information or documents and the right to obtain a court order to force compliance are unconstitutional insofar as they apply to lawyers and notaries because they offend section 8 of the Charter of Rights and Freedoms (Charter), which enshrines the right to be free from unreasonable search and seizure. The SCC also found the exclusion of a lawyer's accounting records from the definition of solicitor-client privilege in subsection 232(1) of the Income Tax Act (ITA) to be unconstitutional and invalid on the same basis.

These decisions will make it more difficult for the CRA to obtain documents located at the offices of lawyers and Quebec notaries. The notary's role in Quebec as legal adviser is similar to the role of a solicitor practising in the common law provinces and the notary is subject to the same professional secrecy as a lawyer practising in Quebec. The SCC has also clarified that the principles of privilege are consistent across the country; the professional secrecy rules that apply to lawyers and notaries in Quebec are the same as the doctrine of solicitor-client privilege as it exists in the common law provinces.


Subsection 231.2(1) states that the CRA may, for any purpose related to the administration or enforcement of the ITA, require that a person provide any information or document to the CRA. Section 231.7 provides that the CRA can obtain a compliance order if a judge determines that the person refused to comply with the CRA's requirement and the information or document sought is not protected from disclosure by solicitor-client privilege as defined in subsection 232(1). This statutory definition excludes "an accounting record of a lawyer, including any supporting voucher or cheque" from the scope of that privilege.

CRA's Demands for Legal Professionals' Files Prohibited by Charter

The SCC has previously held that taxpayers have a reduced expectation of privacy in respect of documents required for the administration of our self-assessing tax system. In this case, however, the SCC rejected the CRA's argument that this lowered expectation of privacy applies to materials that are otherwise subject to professional secrecy. The SCC reiterated that solicitor-client privilege is a "fundamental and substantive rule of law" that "should not be interfered with unless absolutely necessary given that it must remain as close to absolute as possible."

The SCC held that the CRA's power to require production of documents and information from lawyers and notaries under subsection 231.2(1) and section 231.7 is an unconstitutional seizure offending section 8 of the Charter for the following reasons:

  1. There is no requirement that the client (to whom the privilege belongs) be notified of the requirement.
  2. The ITA's scheme imposes an inappropriate burden to defend the privilege on legal advisers who may be negligent or honestly mistaken about which materials are privileged.
  3. The CRA did not establish that disclosure by the legal advisers is absolutely necessary; a demand to lawyers or notaries must only be available as a last resort.

In addition, the SCC ruled that the portion of subsection 232(1) that excludes lawyers' accounting records from the definition of materials subject to solicitor-client privilege is unconstitutional and invalid. The CRA failed to establish that this exclusion was an absolute necessity and the exclusion offends the requirement that professional secrecy must be as close to absolute as possible. The SCC stated that even the name of a client may reveal confidential information about that person's "life or legal problems" and that there is a rebuttable presumption that any document that is "an accounting record of a lawyer" is protected by privilege. The SCC rejected a request to establish a list of types of documents that are presumed to be protected by professional secrecy, saying that whether a particular document or information is privileged will depend on "what it might reveal about the relationship of or communication between the client and his or her legal adviser."

A Guide to a Regime that Would Comply with the Charter

The SCC has provided guidance that may be used by the government as a basis for amendments to the ITA by commenting favourably on a protocol agreed to by Quebec notaries and Revenu Quebec. The most significant elements of this protocol are an agreement that the tax authority will try to obtain the information or documents from other sources, including accountants, before making a request to a notary and a requirement that either the tax authority or the notary seek the client's consent to provide the information requested. If privilege is asserted and the tax authority believes that the documents are not privileged and that it is absolutely necessary to obtain the information, the tax authority may then seek an order from the court for the production of those documents.


The Thompson case arose after a requirement for the production of documents was served by the CRA on Duncan Thompson, a practising lawyer. Mr. Thompson refused to produce, among other things, a listing of the current accounts receivable of his law practice, claiming they were protected by solicitor-client privilege.

The SCC deliberately decided the Thompson case after Chambre des notaires. The SCC held that the language establishing the exception to the definition of solicitor-client privilege in subsection 232(1) was unequivocal and would have been effective in abrogating the privilege over accounting records but for the fact that provision had already been declared constitutionally invalid in Chambre des notaires. In its decision in Thompson, the SCC noted again that all facts connected with the solicitor-client relationship are presumed to be privileged absent evidence to the contrary.


We believe there are three significant implications of these decisions:

  1. The decisions do not impair the CRA's ability to rely on the general requirement power to obtain information or documents, and if necessary, to obtain a compliance order, except with respect to lawyers and notaries.
  2. There will now effectively be a presumption that all documents held at offices of lawyers and notaries are privileged. While this is a rebuttable presumption, it nevertheless changes the landscape for interactions between the CRA and taxpayers' legal advisers. Taxpayers should feel more secure that privileged materials will be protected by Canadian courts.
  3. Accounting professionals who seek to extend privilege over their client communications will be disappointed to see that in its spirited defence of solicitor-client privilege, the SCC endorsed the requirement in the agreement between the Chambre des notaires and Revenu Quebec that the tax authority demand information or documents from accountants before turning to notaries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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