Demands that lawyer produce documents under the Income Tax Act

Lawyers who receive a Notice of Requirement to Produce Documents under section 231.2 of the Income Tax Act should be alert to their professional obligation to protect client privilege.

Canada Customs and Revenue Agency (CCRA) has a broad power under s. 231.2 to require that a person provide, within a reasonable time, any information or document. CCRA frequently relies on this section to seek records from law firms with respect to clients.

When faced with a s. 231.2 notice, a lawyer must comply with Chapter 5, Rule 14 of the Professional Conduct Handbook, which states:

A lawyer who is required, under the Criminal Code, the Income Tax Act or any other federal or provincial legislation, to produce or surrender a document or provide information which is or may be privileged shall, unless the client waives the privilege, claim a solicitor-client privilege in respect of the document.

The lawyer's obligation extends to documents or information that may be privileged, and it is not always easy to determine at law what is privileged and what is not. If you receive a s. 231.2 notice and have any doubt as to whether or not the information sought from you is privileged, you must obtain the instructions of your client (or former client).

Privilege belongs to the client, not the lawyer. Accordingly, your client must be given the opportunity to determine whether or not the information should be produced, or whether to make a claim of privilege. If you are unable to locate the client or former client and you have any doubt as to whether or not the information you have been asked to produce is privileged, you ought to claim privilege to ensure that you meet your obligations under Chapter 5, Ruling 14.

Section 232(1) of the Income Tax Act defines "solicitor-client privilege" as:

the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person's lawyer in professional confidence, except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.

Of note, this definition purports to exclude the accounting records of a lawyer from the protection of solicitor- client privilege. Nevertheless, it is unclear whether certain information in a lawyer's accounting records that would otherwise be privileged (such as the name or address of a client, the nature of the file or any information identifying the nature of the legal services) has to be produced simply because it appears in those records. Because a lawyer is obligated to claim solicitor-client privilege in respect of any document or information that is or may be privileged, you ought to claim privilege over such information in accounting records unless your client instructs you otherwise. For background on this issue, see "The Income Tax Act, Solicitor-Client Privilege and Solicitor-Client Confidentiality" in the May, 1994 issue of The Advocate.

Sections 231.2 and 232(3.1) of the Income Tax Act set out procedures to follow when a claim of privilege is made. These sections, however, must be viewed in light of the Supreme Court of Canada decision in Lavallee v. The Attorney General of Canada 2002 SCC 61 in which the Court struck down s. 488.1 of the Criminal Code as contrary to s. 8 of the Charter. Section 488.1 of the Code sets out a procedure for protecting privilege in law office searches - procedures very similar to those under s. 232 of the Income Tax Act.

The Court in Lavallee found that the protections for safeguarding privilege were inadequate in a number of respects, including the fact that privilege had to be claimed within a strict timeline and could be lost should a lawyer fail to claim it, even though notice had not been given to the client.

The BC Court of Appeal has adopted the reasoning of Lavallee in Festing et al. v. Attorney General (Canada) 2003 BCCA 112.

In Lavallee, the Court stated that:

Solicitor-client privilege is a rule of evidence, an important civil and legal right, and a principle of fundamental justice in Canadian law.

The Court further stated that:

Solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will only yield in certain clearly defined circumstances, and does not involve a balancing of interests on a case by case basis . Indeed, solicitor-client privilege must remain as close to absolute as possible if it is to retain relevance. Accordingly, this Court is compelled . to adopt stringent norms to ensure its protection. Such protection is ensured by labelling as unreasonable any legislative provision that interferes with solicitor-client privilege more than it is absolutely necessary.

In the wake of the Lavallee and Festing cases, it appears that CCRA has, on some occasions, concluded that the procedures in s. 232 of the Income Tax Act may not be valid and has not relied on them. CCRA has instead brought proceedings before a judge, naming the lawyer as the respondent, in order to have the documents produced to the court. It is therefore important to determine exactly what procedure CCRA intends to follow with respect to a particular demand to produce documents.

The Law Society is seeking a meeting with CCRA officials to discuss the protection of solicitor-client privilege, taking into account recent caselaw, the circumstances in which s. 231.2 notices are properly issued to lawyers and the procedures that CCRA investigators and lawyers should follow in response to such notices.

Filing drawer with lock and key

Who to contact

If you receive a s. 231.2 Notice of Demand to Produce Documents from Canada Customs and Revenue Agency, please contact any of these staff lawyers at the Law Society promptly to seek direction on your obligations:

Michael Lucas, Staff Lawyer, Policy & Legal Services (
Kensi Gounden, Staff Lawyer, Professional Conduct (
Tim Holmes, Manager of Professional Conduct (
Jean Whittow, QC, Deputy Executive Director (

All can be reached by telephone at 604 669-2533 (toll-free within BC: 1-800-903-5300.