PRIVILEGE AT RISK IN CRA RFI PROCEEDINGS?
FEDERAL COURT DECLINES PRIVILEGE REVIEW & ORDERS PRODUCTION TO CRA
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As discussed in our review of Federal Court’s (“FC”) 2025 pair of decisions in Shopify here and here, the Canada Revenue Agency (“CRA”) has judicial means to compel information from taxpayers through Requests for Information (“RFI”). These powers are usually subject to important limits, including solicitor-client privilege.
However, a recent decision from the FC shows that asserting privilege may not be enough to protect documents from disclosure. In Canada v. KPMG Canada LLP, 2026 FC 793, the FC considered a compliance application under section 231.7 of the Income Tax Act (“ITA”) – for which a parallel mechanism exists under section 289.1 of the Excise Tax Act (“ETA”) – and granted an order compelling production of more than 900 documents over which privilege was asserted.
Facts
In KPMG, the CRA audited several corporate taxpayers for compliance under the ITA and issued an RFI in respect of documents related to valuation, tax planning and professional services provided to the taxpayers.
In response to the RFI, counsel for the taxpayers under audit advised that a third party had asserted solicitor-client privilege or other privileges over most of the responsive documents and provided a privilege log listing over 900 such documents of unknown length and complexity. The CRA obtained an interim order, allowing any person asserting privilege in respect of the privilege log to be added as a respondent and make submissions within 30 days.
When no person moved to be added as a party, CRA filed an application under section 231.7 of the ITA which generally permits the Federal Court to compel production where (1) a person has failed to provide the requested information and (2) the requested documents are not protected by solicitor-client privilege (a parallel power exists under subsection 289.1 of the ETA).
Although KPMG took no position on whether privilege existed, it offered to provide the documents in the privilege log to the Court in a sealed envelope to allow the Court to determine the issue.
Federal Court Decision
Reviewing the jurisprudence, the Court held that although it possesses the power to review documents to determine whether privilege exists, that power should be used sparingly. A party asserting privilege must first establish, through affidavit evidence, prima facie grounds for a claim of privilege.
Given (1) the sheer volume of documents in issue, (2) the nature of the dispute, and (3) the lack of information necessary to assess the claims of privilege, the FC declined to undertake its own review of the documents in the privilege log.
As the privilege log lacked sufficient particulars to support the claims of privilege, and the parties asserting privilege had failed to discharge their burden of establishing that disclosure would reveal privileged information, the FC granted the CRA’s requested compliance order, requiring production of the remaining documents.
Privilege is NOT enough.
When dealing with these Requests, Experienced Tax
Counsel can help.
Takeaways
The KPMG decision is a reminder that while solicitor-client privilege remains an important limit on CRA RFIs under both the ITA and ETA, the burden of establishing privilege rests with the party claiming it.
Simply asking the Court to “figure it out” may not be enough to resist an RFI and may result in privileged documents being disclosed.
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