Maintaining solicitor-client privilege over tax planning communications
Published by Brittany RosslerIntroduction
The Tax Court of Canada’s recent decision in Coopers Park Real Estate Development Corporation v His Majesty the King, 2024 TCC 122 (“Coopers Park”) serves as an important reminder of the unique and protected nature of privileged communications between lawyers and clients. In particular, the Court highlighted the narrow circumstances under which communications that involve third parties, such as accountants, may remain subject to the protections afforded to the solicitor-client relationship. The Court’s decision assists taxpayers and their professional advisors (e.g., lawyers, accountants, financial planners) in understanding when privilege does—and does not—apply in the context of tax planning advice.
In brief, the decision arose out of a disagreement between the taxpayer (Coopers Park) and the Minister of National Revenue (“Minister”) about the proper scope of pre-trial discovery. Dissatisfied with the information disclosed by Coopers Park, the Minister brought a motion seeking to compel Coopers Park to produce (amongst other things) documents over which it claimed privilege. Primarily, those consisted of documents prepared by an accounting firm, including internal memoranda, and communications between the accounting firm and a law firm.
Communication protected by solicitor-client privilege is the most protected form of communication
First, it is important to understand what solicitor-client privilege is. The concept of “privilege” is narrower than the concepts of “private” or even “confidential”. Many types of communications may be private or confidential, but only privileged communications are afforded near-absolute protection from disclosure. Confidential communications between lawyers and clients relating to the seeking and giving of legal advice are one type of privileged communication and are protected under the “solicitor-client privilege” doctrine. Accordingly, the Minister cannot force a taxpayer or anyone else to produce communications that are subject to solicitor-client privilege, including as part of a pre-trial discovery process (as was at issue in Coopers Park) or during an income tax audit.
Taxpayers and their professional advisors should know when privilege may be properly asserted and when it may be lost. Of note, disclosing privileged information to third parties, such as the CRA, may constitute a waiver–and thus loss–of privilege. Privilege belongs to the client and once waived, cannot be reasserted.
Principles that apply when a third party is involved
Solicitor-client privilege protects communications between lawyers and their clients. In certain circumstances, communications involving third parties may also be protected by solicitor-client privilege. These types of communications were at issue in Coopers Park, in which the taxpayer argued that when its accountant authored or forwarded information to or from legal counsel, it did so as its agent for the taxpayer and was therefore within the scope of solicitor-client privilege. The Minister, on the other hand, argued that an accountant’s tax planning advice is not privileged and that there was insufficient evidence to demonstrate that the accountant was in fact acting as an agent in the specific circumstances of this case.
Ultimately, the Court agreed with the Minister. The Court summarized the principles relating to solicitor-client privilege over communications with third parties, such as accountants, as follows:
[49] 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. The privilege applies to documents within the continuum of communication in which the solicitor tenders advice.
[50] There is no accountant-client privilege. Documents containing accounting, business, or policy advice are not privileged. However, solicitor-client privilege applies where an accountant acts as a representative or agent for a client in obtaining legal advice from a solicitor.
[51] There is no privilege where the accountant gives original and independent tax advice to either the lawyer or the client, even if the lawyer has overall responsibility in providing advice for a transaction.
The Court analysed each document over which Coopers Park asserted privilege and assessed the accountant’s role functionally, in terms of what it was retained to do, its relationship with the taxpayer, and what it actually did. In analysing the engagement letter between Coopers Park and its law firm, the Court concluded that the accountant’s role was to act as an agent for the client and to provide the law firm with factual and other information. However, at the hearing of the motion, Coopers Park provided insufficient evidence that the accountant was actually acting as its agent in obtaining legal advice or as a conduit or translator for certain facts for the lawyer with respect to the particular documents over which Coopers Park asserted privilege.
Rather, the Court held that the accountant’s communications (including certain memoranda prepared for the accountant’s file and emails between the accountant and other parties) went beyond the scope of what was covered by the engagement letter and constituted “independent legal advice”. The Court reiterated that such advice is not privileged and ordered that it be disclosed to the Minister. As a result, the documents ordered to be disclosed may be used by the Minister in support of its reassessment of Coopers Park under the general anti-avoidance rule (“GAAR”) and could end up forming part of the public record.
Key takeaways
Tax planning and compliance are often interdisciplinary efforts involving the skills of many types of professionals. Coopers Park reminds us that the mere involvement of a lawyer does not automatically make all documents and communications “privileged”. Parties should therefore exercise caution to ensure privilege is properly protected. For example, where the intention is for an accountant to act as an agent for the client in seeking legal advice from a lawyer, it is crucial that the accountant not overstep this role by offering the accountant’s own independent advice, which will not be privileged (as was the case in Coopers Park).
Lawyers and their clients who involve third parties in the tax planning process should seek professional advice to ensure solicitor-client privilege is protected, where possible. Coopers Park serves as a stark reminder of the negative consequences which may befall a taxpayer if they do not.