On June 22, 2023, Bill C-47 received Royal Assent, bringing into force new or expanded mandatory reporting rules for certain “reportable” or “notifiable” transactions (the “Mandatory Disclosure Rules”). The Mandatory Disclosure Rules require taxpayers, promoters and certain advisors (including legal professionals) to report to the government information in respect of certain transactions with which they are involved. Non-compliance with the reporting obligations can result in substantial penalties for those who fail to file information returns when required. For further discussion on the Mandatory Disclosure Rules, see our previous tax alert and blog post.
The Mandatory Disclosure Rules give rise to, among other things, potential conflicts of interest between legal professionals and their clients. Legal professionals may thus be put in the precarious position of having to comply with a law that may conflict with the professional duties they owe to their clients.
On September 11, 2023, a petition challenging the constitutionality of the application of the Mandatory Disclosure Rules to legal professionals was filed in the Supreme Court of British Columbia. The petition was filed by the Federation of Law Societies of Canada (the “Federation”), the national association of the 14 provincial and territorial bodies governing the legal profession in Canada (including Quebec notaries and Ontario paralegals). The petition seeks to exempt legal professionals from the Mandatory Disclosure Rules and requests an injunction suspending the application of the Mandatory Disclosure Rules to legal professionals until the court releases a decision on the petition. The challenge appears similar to that which resulted in one of the provisions in the EU Directive informally known as “DAC6” being invalidated, as summarized in our previous blog.
As confirmed by a Backgrounder and preceding news release from the Federation, a hearing on the application for an injunction has been set for October 20, 2023. In the interim, the Government of Canada has agreed to a consent injunction suspending the application of the Mandatory Disclosure Rules to lawyers and articling students in all provinces and territories, as well as notaries in Quebec and paralegals in Ontario. The consent injunction expires on the earlier of a decision by the Court on the injunction application and November 20, 2023.