Tax planning and compliance often involve collaboration between lawyers and accountants. Unless an accountant is the retaining client, they are often involved as third-party advisors whose participation in solicitor-client communications may impact the confidentiality of these communications. In such circumstances, concerns may arise with respect to maintaining solicitor-client privilege.
The Supreme Court of Canada, in the case of Solosky v The Queen, established the basic test for determining when solicitor-client privilege applies. The party asserting privilege must be able to demonstrate that the communication (a) has been made for the purpose of giving or receiving professional advice; (b) was made in confidence with no third-party present and with the intent it be kept confidential; and (c) was made within the scope of ordinary professional employment.
Two recent cases from the Tax Court of Canda (“TCC”) analyze the circumstances under which communications with a client’s accountant may be protected by solicitor-client privilege.
Coopers Park Real Estate Development v. the King (“Coopers Park”)[1]
Coopers Park, released in September 2024, involved an underlying general anti-avoidance rule (“GAAR”) case and motions to compel disclosure of documents for discovery.
The appellant taxpayer asserted solicitor-client privilege with respect to the documents at issue. The appellant argued that the accountant was acting as agent for the appellant in communicating with and authoring documents to counsel.
The respondent objected to this claim of privilege on the basis that an accountant’s tax planning advice is not privileged, and there was insufficient evidence to prove the accountant was acting as agent of the appellant in the specific circumstances.
The TCC held at paragraphs 49-51 that:
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.
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.
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.
Accordingly, where the taxpayer’s accountant acted beyond the scope of its engagement letter, it did so beyond its authority as the taxpayer’s agent. Any documents or communications between counsel and the accountant acting beyond its authority as agent does not fall under the protection of solicitor-client privilege and would be required to be produced when requested.
Stack v the King (“Stack”)[2]
The TCC in Stack released two decisions involving appellant taxpayers engaged in a series of transactions that led to a Canada Revenue Agency (“CRA”) audit. As a result of the audit, the CRA issued a reassessment, applying the GAAR. The appellants eventually appealed to the TCC, disputing the application of the GAAR.
Both parties brought motions to compel answers and documents during pre-trial discovery, including disclosure of communications between counsel and the taxpayer’s accountants.
The decision in Stack was released in two parts, the first being released in October 2024, and the second being released in December 2024. The first decision analyzes the foundational principles relating to solicitor-client privilege and will be the focus of the discussion. The second decision analyzes refusals of production for reasons other than privilege and is outside the scope of this article.
In the first decision, the TCC held that communications containing legal advice from counsel to the taxpayers’ accountant was privileged. The TCC stated that “The use of an accountant as a representative in the course of obtaining legal advice or legal assistance for a client does not nullify otherwise privileged communications”. Therefore, the Court found that communications to accountants, that contain “protected confidential legal advice” should not be subject to production on the basis of privilege.
The conclusion in Stack can be contrasted with Coopers Park because the circumstances in Stack indicated the parties’ intention to maintain privilege over the documents. In contrast, in Coopers Park the roles of the parties were not clear and did not identify certain parties as acting as agents for the taxpayer which clouded the situation.
Key Takeaways
Taken together, Coopers Park and Stack establish that communications between counsel and any third-party advisors or accountants are not protected by solicitor-client privilege unless:
1. The third-party advisor or accountant is acting as an agent or conduit of the client, within the scope of their engagement; and
2. The communications or documents entail the seeking or giving of legal advice, or are within the continuum of communications in which legal advice is sought or given.
Documents or communications originating from an accountant that is otherwise an agent of the client but is acting beyond the scope of their agency, or is providing independent advice, will not be privileged. Further, documents or communications between counsel, accountant, and/or client that are not related to legal advice (i.e., are with respect to accounting, business, or policy advice) are also not subject to privilege. However, where the circumstances are clearly for the seeking of legal advice and indicate an intention to keep communications secret, generally, privilege will be maintained.
In order to protect the confidentiality of client communications and advice, the following should be considered. First, lawyers should be wary with respect to which parties are copied on any intended privileged communications and ensure that any professionals retained by clients who are privy to privileged information are acting as agents of the client. Second, clear engagement agreements should be entered into specifying the scope of work to be performed by each of the parties. Lastly, communications with respect to business or tax planning advice should be separated from communications seeking legal advice so that such legal communications are not tainted.
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