Tax Court of Canada Rules There is no Accountant-Client Privilege
Coopers Park Real Estate Development Corporation v. The King 2024 TCC 122
In Coopers Park Real Estate Development Corporation v. H.M.Q., 2024 TCC 122 (“Case”), the Tax Court of Canada (“Court”) addressed a significant legal issue regarding solicitor-client privilege in the context of a tax appeal. The Court ruled in favor of the Respondent, requiring the Appellant to, inter alia, disclose documents it had claimed were protected by solicitor-client privilege. Ultimately, the Appellant was unable to meet the evidentiary burden necessary to substantiate its claim.
What is the underlying issue in the tax appeal?
The underlying tax appeal involves the application of GAAR, which seeks to deny the Appellant over $68 million in losses, expenditures and credits claimed for the taxation years 2007 to 2009. Following the discovery proceedings, the Respondent brought forward a motion to challenge the solicitor-client privilege claims the Appellant made over certain documents.
What is solicitor-client privilege?
Solicitor-client privilege protects communications between a lawyer and their client that are intended to be confidential by the parties and pertain to the seeking or giving of legal advice. The Court in Redhead Equipment Ltd. v Canada (Attorney General), [2016] SJ No 471 (SKCA) (“Redhead Equipment Ltd.”) explained that this type of “privilege applies to documents with the continuum of communication in which a solicitor tenders advice” (paragraphs 34 to 36 of Redhead Equipment Ltd.). In certain situations, communications involving third parties may also qualify for this privilege. This type of communication was what was at issue in the Case.
What are the positions of the parties?
The Appellant contends that communications between KPMG LLP (its accountant), and its legal counsel, specifically documentation drafted by KPMG LLP or that KPMG LLP forwarded to or from the Appellant’s legal counsel, should be protected under solicitor-client privilege asserting that KPMG LLP acted as the Appellant’s agent. Conversely, the Respondent argued that the Appellant did not sufficiently demonstrate that KPMG LLP acted as an agent for the Appellant in the impugned context, and privilege is not applicable to an accountant’s tax planning advice.
Why did the Court grant the motion in favor of the Respondent?
To evaluate the Appellant’s assertion that specific documents were protected by solicitor-client privilege, the Court examined each document, considering KPMG’s functional role, including its responsibilities as defined by the Appellant, its relationship with the Appellant, and its actual actions. The Court noted that, according to the Engagement Letter, defined in paragraph 61 of the decision, KPMG was to act as the Appellant’s agent and provide information to the Appellant’s legal counsel. However, during the motion hearing, the Appellant did not meet the burden of proof required to demonstrate, on a balance of probabilities, that KPMG was acting as its agent when obtaining legal advice or serving as a conduit for certain facts intended for the Appellant’s lawyer regarding the disputed documents.
The Appellant failed to submit affidavit evidence to substantiate its claims, relying instead on: (a) a chart listing the documents with a column labeled ‘Nature of the communication or document and subject line’; and (b) correspondence between counsel. The Court determined that these materials did not constitute adequate supporting evidence, necessitating a decision based solely on the documents themselves. If the documents did not explicitly indicate privilege, as outlined in Imperial Tobacco Canada Limited v H.M.Q, 2013 TCC 144, they were deemed non-privileged.
The Court determined that several of the Appellant’s supporting documents lacked clarity regarding their authors or recipients, and some did not establish a clear link to legal advice. Additionally, KPMG’s communications fell outside the scope outlined in the Engagement Letter, qualifying as independent legal advice, which is not protected by privilege. The Court stated that “absent affidavit evidence from the parties directly involved, (…) [it could not] conclude, on the balance of probabilities, that the documents in question were part of the continuum of obtaining legal advice. Mere assertions are not sufficient” (Paragraph 60 of the decision). Consequently, the Court held that the Appellant was required to disclose most of the documents to the Respondent, who could then utilize them in support of its reassessment against the Appellant.
What are the takeaways from the Case?
This ruling highlights an important distinction for taxpayers and practitioners: there is no such thing as accountant-client privilege. Documents containing accounting, business, or policy advice are not protected. However, solicitor-client privilege does apply when an accountant acts as a representative or agent for a client in obtaining legal advice from a lawyer. As noted in the ruling, “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” (Paragraph 51 of the decision). Therefore, the mere involvement of a lawyer in a communication does not automatically confer privilege on all related documents.
Another important takeaway from the Case is the need to carefully draft retainer agreements. These agreements should clearly define the individuals involved in tax planning to ensure they are included within the scope of the solicitor-client relationship.
