Supreme Court of Canada releases decisions concerning CRA notices of requirements [updated September 8, 2016]

The Law Society has received confirmation that the CRA will not be issuing requirements or compliance orders to lawyers or notaries for information related to their clients where that information is held in their capacity as a legal advisor.

The issue concerning lawyers’ professional obligations where they receive a notice of requirement to produce information from the Canada Revenue Agency (CRA) in connection with a client’s information or documents has been discussed several times over the last number of years in previous Benchers’ Bulletins. Most recently, in the Spring 2016 issue it was noted that the Quebec Court of Appeal had declared the provisions for the Income Tax Act under which the notices of requirement are issued to be constitutionally invalid, and that the decision was appealed to the Supreme Court of Canada.

The Supreme Court recently released its decisions in Canada (Attorney General) v. Chambre des Notaires du Quebec, 2016 SCC 20, and Canada (National Revenue) v. Thompson, 2016 SCC 21.

In the former case, the court concluded that a notice of requirement issued under the Income Tax Act constitutes a seizure within the meaning of s. 8 of the Charter, and that the seizures made under s. 231.2 of the Act were unreasonable and contrary to section 8 because the requirement scheme did not provide adequate protection for solicitor-client privilege.

In particular, the court held that the procedures set out in the Income Tax Act did not require the holder of the privilege (that is, the client) to be informed of the notice of requirement or of any proceeding brought by CRA to obtain an order to provide the information or documents required to be produced. Moreover, the procedure also placed the entire burden of protecting the privilege on the lawyer. The court also concluded that neither the Attorney General nor CRA had established that it was absolutely necessary to impair solicitor-client privilege. Because the impugned provisions did not minimally impair the right to solicitor-client privilege, they could not be saved under s. 1. As such, the sections in question (ss. 231.2(1) and 231.7 of the Income Tax Act) were declared to be unconstitutional and inapplicable to Quebec notaries and lawyers in their capacity as legal advisors.

The court also held that the definition of "solicitor-client privilege" in s. 232(1) of the Income Tax Act was unconstitutional and invalid. The manner in which it limits the scope of solicitor-client privilege is not absolutely necessary to achieve the purposes of the Income Tax Act, and therefore the exception is contrary to s. 8 of the Charter.

In Thompson, the court noted that the definition of "solicitor-client privilege" in s. 232(1) of the Income Tax Act is unequivocal, and Parliament’s intent to define privilege so as to exclude a lawyer’s accounting record from its protection "could hardly be clearer." While Parliament may, with clear and unambiguous language, evince an intent to abrogate privilege in respect of specific information (see Canada (Privacy Commissioner) v. Blood Tribe Department of Health 2008 SCC 44), the question of whether a legislature can abrogate solicitor-client privilege over a class of documents in which the seizure of such documents is permitted cannot be answered, the court concluded, on the basis of Blood Tribe alone. In Thompson, the Supreme Court noted that Parliament’s intent and its ability, in constitutional terms, to define solicitor-client privilege in a particular way are not necessarily equivalent.

Where a seizure is involved, s. 8 of the Charter comes into play. As noted in Chambre des Notaires, the court concluded that the purported abrogation of solicitor-client privilege over accounting records in s. 232 (1) of the Income Tax Act is constitutionally invalid because it permits the state to obtain information that would otherwise be privileged to a far greater extent than is absolutely necessary for the administration of the Income Tax Act.

As a result of the court’s decisions, ss. 231.2 and 231.7 of the Income Tax Act are unconstitutional and inapplicable to lawyers and Quebec notaries in their capacity as legal advisors, and the exception in the definition of solicitor-client privilege in s. 232(1) of that Act is constitutionally invalid.

Lawyers who are currently the subject of an outstanding notice of requirement pursuant to s. 231.2 or who are a party to an application for a compliance order under s. 231.7 should contact Barbara Buchanan, QC (bbuchanan@lsbc.org) or Michael Lucas (mlucas@lsbc.org) at the Law Society if they have any questions.