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Canada Revenue Agency: solicitor-client privilege for commonly interested parties

Solicitor-Client privilege bars the CRA from compelling legal-advice documents when a taxpayer discloses to a party with a common interest, says tax lawyer David J. Rotfleisch

Author: David J. Rotfleisch

TORONTO, April 16, 2018 – In IGGillis Holdings Inc. v Minister of National Revenue, the Canada Revenue Agency (CRA) forced the courts to examine both the extent of the CRA's tax audit power and the limits of solicitor-client privilege. The taxpayer's Canadian tax lawyer prepared a legal tax opinion explaining how to carry out a transaction with minimal tax costs. The taxpayer shared this tax opinion with the other party to the transaction. Arguing that the taxpayer waived solicitor-client privilege by sharing the legal tax opinion, the CRA demanded that the taxpayer hand over the tax opinion.

Eliciting gasps from the business community, the Federal Court sided with the Canada Revenue Agency. The Federal Court of Appeal overturned this decision and confirmed that solicitor-client privilege extends to cases where a person shares her lawyer's legal advice with commonly interested parties to a transaction.

David J. Rotfleisch
David J. Rotfleisch, CPA, CA, JD

The CRA's Audit Powers: Requirement for Information

Sections 231.1 and 231.2 of Canada's Income Tax Act set forth the Canada Revenue Agency's tax audit and information-gathering powers. In particular, in the name of enforcing or administering the Income Tax Act, these sections permit the CRA to:

·  inspect, audit, or examine any document of the taxpayer;
·  examine the property of the taxpayer or any other person;
·  inspect, audit, or examine any document of any other person;
·  enter any premises to examine documents or property; and
·  require any person to provide any information or document.

On the basis of these provisions, the CRA can issue a Requirement for Information, which is essentially a letter demanding a taxpayer to turn over various documents or information. If the taxpayer refuses, the CRA can pursue a court order forcing the taxpayer to comply or face sanction.

Exception to a Requirement for Information: Solicitor-Client Privilege

The CRA cannot, however, demand that a taxpayer turn over information that benefits from the protection of solicitor-client privilege. Subsection 232(1) of Canada's Income Tax Act includes its own definition of "solicitor-client privilege":

the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person's lawyer in professional confidence...

Basically, solicitor-client privilege ensures that communications between a lawyer and his or her client remain permanently protected from compelled disclosure. A document must meet three criteria to benefit from solicitor-client privilege: it must (1) be a communication between lawyer and client, (2) entail the seeking or giving of legal advice, and (3) be intended to be confidential by the parties (Solosky v Her Majesty the Queen, [1980] 1 SCR 821, at page 837).

Waiver & Common-Interest Privilege

Legal advice loses the protection of solicitor-client privilege if you waive that protection. The recipient of legal advice waives solicitor-client privilege if he or she demonstrates that the communication wasn't intended to remain confidential. You might, for instance, waive solicitor-client privilege by sharing a privileged document with a third party.

Yet not all instances of sharing your lawyer's advice with a third party constitute a waiver of solicitor-client privilege. In particular, solicitor-client privilege persists where a party discloses a legal opinion to another party with a common interest in completing a transaction that is the subject of the opinion (e.g., see: Maximum Ventures Inc. v De Graaf, 2007 BCCA 510, at para 14).

The Tax Plan of Ian Gillis & the Abacus Group

Mr. Ian Gillis and his holding corporation, IGGillis Holdings Inc., owned shares in various corporations. Gillis and IGGillis transferred these shares to Abacus Capital Corporations Mergers and Acquisitions ("Abacus"), a corporate group that provided tax-planning advice. Before Gillis and IGGillis transferred their shares, Abacus's tax lawyer prepared a tax-planning memorandum detailing how the share transfer should proceed and the tax implications of proceeding in the suggested manner. While Gillis's Canadian tax lawyer also contributed to this memorandum, it was primarily the work product of Abacus's lawyer.

Gillis and Abacus each received a copy of the tax-planning memo. Gillis wasn't a client of Abacus's tax lawyer; Abacus wasn't a client of Gillis's tax lawyer.

After the parties completed the share transfer, the CRA issued Requirements for Information to Gillis and Abacus. The Requirements demanded that the parties provide the CRA with a copy of the tax-planning memo.

The parties claimed that solicitor-client privilege precluded the CRA from demanding that the parties turn over the memo. In response, the Minister of National Revenue applied to the Federal Court for an order enforcing the Requirements for Information against Ian Gillis and his holding corporation.

The Federal Court's Decision: The Minister of National Revenue v IGGillis Holdings, 2016 FC 1352

The Federal Court judge allowed the Minister's application and ordered Ian Gillis and his holding corporation to provide the CRA with a copy of the tax-planning memo.

The judge based this disposition on the conclusion that "advisory [common-interest privilege] is not a legitimate or acceptable application of solicitor-client privilege" (ibid, at para 300). The judge held that common-interest privilege should only avail to parties with common interests in litigation; it should not avail to parties with common interests in a transaction.

Notably, the judge's conclusion that common-interest privilege only applied during litigation lay in stark contrast to established Canadian jurisprudence. Canadian courts had long held that common-interest privilege served as a defence to an allegation that, by sharing a legal opinion with mutually interested parties in a commercial transaction, the disclosing party had thereby waived solicitor-client privilege to the shared opinion. Moreover, Canadian courts recognized that a successful claim of common-interest privilege did not require pending or ongoing litigation.

But instead of deferring to the established Canadian jurisprudence, the Federal Court judge relied on a New York Court of Appeals decision, which rejected the application of common-interest privilege in commercial transactions.

The Federal Court of Appeal's Decision: IGGillis Holdings Inc. et al v Minister of National Revenue, 2018 FCA 51

Ian Gillis and his holding corporation appealed the Federal Court's decision to the Federal Court of Appeal. Abacus, the Federation of Law Societies of Canada, and the Canadian Bar Association each served as interveners.

The Federal Court of Appeal allowed the appeal, holding that solicitor-client privilege prevented the CRA from compelling the parties to turn over the tax-planning memo. The appellate court observed that the Income Tax Act's definition of "solicitor-client privilege" refers to the privilege as a right "in a superior court in the province where the matter arises." The appellate court thus reasoned that the Income Tax Act demanded the lower court to constrain its privilege analysis to Canadian law.

As a result, the Federal Court of Appeal found that the lower court erred by relying on American jurisprudence and ignoring the Canadian cases, which accepted common-interest privilege as an extension of solicitor-client privilege. Not only did the Federal Court of Appeal confirm that solicitor-client privilege encompasses common-interest privilege, but also the court held that Abacus's and Gillis's common interests warranted a finding that solicitor-client privilege protected the tax-planning memo from disclosure to the CRA:

Based on the decisions of the courts in Alberta and British Columbia, solicitor-client privilege is not waived when an opinion provided by a lawyer to one party is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions. This principle applies whether the opinion is first disclosed to the client of the particular lawyer and then to the other parties or simultaneously to the client and the other parties. In each case, the solicitor-client privilege that applies to the communication by the lawyer to his or her client of a legal opinion is not waived when that opinion is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions.

As noted above, when dealing with complex statutes such as the Income Tax Act, sharing of opinions may well lead to efficiencies in completing the transactions and the clients may well be better served as the application of the Income Tax Act will be of interest to all of the parties to the series of transactions. In my view, in the circumstances of this case, Abacus and Gillis had sufficient common interest in the transactions to warrant a finding that, in Alberta or British Columbia, the Abacus memo is protected from disclosure by solicitor-client privilege [ibid, at paras 41-42].

In sum, the Federal Court of Appeal's decision confirmed the integrity of solicitor-client privilege in cases where a person shares her lawyer's legal advice with commonly interested parties to a transaction.

Implications for Taxpayers in Litigation with the CRA

The Federal Court of Appeal's holding in Gillis should serve as reassurance to taxpayers implementing tax-planned transactions. These sorts of transactions often demand transacting parties to seek the advice of a tax lawyer. And, given the complexity of the Income Tax Act, parties typically benefit from sharing their Canadian tax lawyer's advice and tax plan with counter parties. The Gillis decision confirms that taxpayers need not worry about cooperative tax plans resulting in their unintentionally waiving privilege—and availing to the prying eyes of the Canada Revenue Agency. It is equally important to remember that no such privilege exists between accountants and lawyers. If a tax accountant had prepared that tax planning memo, the CRA would have been able to review it.

Tax Tips

While solicitor-client privilege protects the discussions that you have had with a lawyer, your communications with an accountant remain unprotected. That is, the CRA can compel your accountant to reveal the details of your file. So, if you seek tax advice, but want to keep that information away from the CRA, you should approach a Canadian tax lawyer first. If you then require an accountant, the tax lawyer can retain the accountant on your behalf and thus extend the solicitor-client privilege.

This article originally appeared on Mondaq and is reprinted courtesy of the author. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

David J Rotfleisch, CPA, CA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. Visit and email David at

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