Special rules in the Excise Tax Act (“ETA”) provide the Canada Revenue Agency (“CRA”) with tools to request or require information for verification and administrative purposes. The CRA can send out a “requirement to provide information” – known as RFI – relating to the enforcement of Part IX of theETA to a registrant or third party (section 289). Where the person refuses to comply with an RFI, the Minister may make an application to the Federal Court and obtain a “compliance order” and, if the person still fails to comply with the compliance Order and provide the information as ordered, the person can be subject to contempt of court penalties (section 289.1). (Note that there are parallel provisions under the Income Tax Act (“ITA”): see section 231.2(1) and section 231.7 of the ITA).
During a tax appeal it is quite common for a tax appellant and the CRA to disclose information and to formally agree on certain facts. For example, at the outset of most tax appeal trials the parties often prepare a document commonly referred to as a “Statement of Agreed Facts” or “Partial Statement of Agreed Facts” that outlines the facts that the parties agree on.
The Tax Court of Canada (“TCC”) decision in Athabasca University v. The Queen, 2016 TCC 252 (“Athabasca”) is a perfect example of why it is imperative that no concessions or agreement of facts be made without a careful analysis of the potential implications that this could have on the ultimate issues in dispute in the tax appeal.
The principle of solicitor-client privilege holds that communications between a client and his or her lawyer cannot be compelled to be disclosed without permission of the client. Although this principle started as an evidentiary rule, it has developed into a principle of fundamental justice.
Canadian tax legislation endows the CRA with various powers to compel individuals and businesses to disclose information and documentation in support of administering or enforcing that tax legislation. Failure to comply with CRA’s requirements undert these rules can result in fines or imprisonment. Solicitor-client privilege and these disclosure rules collide where CRA attempts to compel client-related information and documentation from lawyers. The Supreme Court of Canada has recently dealt with this issue in Chambre des notaires du Québec (2016 SCC 20) and its companion case Thompson (2016 SCC 21). The decisions make clear that solicitor-client privilege will be upheld in the face of these disclosure provisions.