Canada Revenue Agency: requirements for information

The Income Tax Act authorizes the Ministry of National Revenue to require a person to provide information or documents for any purpose related to the administration or enforcement of the Income Tax Act. These are usually referred to as requirements for information (RFI).

Lawyers occasionally receive an RFI from the Canada Revenue Agency (CRA) for documents in their possession relating to former or current clients. Lawyers are reminded that they owe a duty of loyalty to a client and a duty to protect the client’s confidences and privilege, even when a transaction is complete and the file is closed (Chapter 5, Rule 14 of the Professional Conduct Handbook).

When issuing RFIs, the CRA often advises lawyers that the documents being sought (usually financial records, including trust cheques relating to the payout from the lawyers’ trust account or the proceeds of sale of an item or real property) are not privileged, and that the lawyer must produce the information required, pursuant to the Income Tax Act.

The Ethics Committee has considered this issue and concluded that Chapter 5, Rule 14 requires a lawyer to make a claim of privilege in all circumstances if unable to obtain instructions otherwise from the client. While certain situations may make it unlikely that a claim of privilege would succeed, unique facts in some situations can cause documents to be privileged that may ordinarily not be privileged. Since privilege always belongs to the client, the committee was of the opinion that the decision whether to claim privilege must always be that of the client and not of the lawyer, regardless of the lawyer’s view about the validity of the potential claim. The committee further concluded that, if a client cannot claim privilege because the client does not know of CRA’s application to obtain the client’s document from the lawyer, it is the role of the court to decide the issue of privilege, not the role of the lawyer who has custody of the document.

Steps to take on receiving an RFI

In light of the Ethics Committee’s consideration of this matter, the Law Society advises a lawyer who receives an RFI to do the following:

1. Contact the client and seek instructions with respect to privilege. The Law Society suggests that the client should obtain independent legal advice on whether any privilege exists. The lawyer should fully and frankly advise a client on the likelihood of success of any privilege claim;

2. If the client waives privilege and instructs the lawyer to produce the documents in question, the lawyer may do so.

3. If the client claims privilege, or if the lawyer no longer knows the whereabouts of the client and cannot obtain instructions, the lawyer should make a claim of privilege if the document is or may be privileged.

If the client has instructed a lawyer to claim privilege, or if the lawyer is unable to obtain instructions from the client and has therefore claimed privilege on her or his behalf, the CRA will likely make an application for a compliance order against the lawyer pursuant to s. 231.7 of the Income Tax Act. The CRA often advises the lawyer that it will seek costs against the lawyer in the event that the application for a compliance order is necessary. The Law Society has discussed the issue of costs on such applications with the Department of Justice. While no consensus was reached, the Department of Justice has advised that, when a client expressly instructs a lawyer to claim privilege, the CRA will not generally seek costs against the lawyer, although there may be situations where this is not the case.

In situations where the lawyer does not know the whereabouts of the client, and has claimed privilege on behalf of the client, we have been advised that the CRA will continue to deal with each situation on a case by case basis and may therefore seek costs against a lawyer if it concludes that it is necessary to do so.

The Ethics Committee recognizes that its view on a lawyer’s obligations when faced with an RFI may expose the lawyer to a claim of costs for CRA’s application for a compliance order. In this situation, the lawyer should notify the Law Society so the society can consider whether to seek leave to intervene or appoint counsel on behalf of the lawyer.