Lawyers in B.C. and across Canada are challenging a new law that will cause them to report more instances of client transactions where abusive and aggressive tax avoidance is suspected and introduce penalties, including jail, for not doing so.
Late last month, the Federation of Law Societies of Canada was granted an injunction against the federal government to delay the implementation of new laws under the Income Tax Act (Bill C-47) designed to further compel lawyers to report such transactions to the Canada Revenue Agency (CRA).
Supreme Court of B.C. Justice Lisa Warren granted the injunction on Nov. 24 ahead of a constitutional challenge by the federation, which represents 14 laws societies and more than 141,000 lawyers across the country.
At issue is alleged state overreach by the attorney general of Canada into the affairs of individuals. Lawyers contest new reporting requirements infringe on the constitutional right of solicitor-client privilege.
“Lawyers and other members of the legal profession, owe a duty of commitment to their client’s cause and are also bound by rules of professional conduct to maintain the confidentiality of information received from their clients,” the federation has stated in an online backgrounder.
“These principles are essential to the proper functioning of Canada’s justice system. They ensure that individuals receive legal advice informed by full and candid disclosure to their legal counsel that is uninfluenced by counsel’s own self-interest.”
Warren’s judgment found an injunction was warranted as it was apparent there was a serious issue to be tried in court. And before the challenge is heard, implementing the law would do irreparable harm should it be found to be unconstitutional, ruled Warren.
“I have found that the potential for the unconstitutional reporting by lawyers of confidential and privileged client information, and the conflicts of interest between lawyers and their clients that will arise as a result of potentially unconstitutional legislation, would irrevocably damage the public interest by undermining the public’s confidence in an independent bar,” wrote Warren.
Warren noted mandatory disclosures of reportable transactions have existed since 2013 but Bill C-47 lowered the reporting threshold and also implemented a punishment for lawyers and other professionals who do not comply — a fine of up to $25,000 and imprisonment for a term of up to 12 months.
Warren also noted that the new law provides that “disclosure is not required ‘if it is reasonable to believe that the information is subject to solicitor-client privilege.’”
The federation is hanging its hat, in part, on the fact the Supreme Court of Canada has upheld a lawyer’s right not to report a client to Fintrac, the national financial transactions and analysis agency overseeing the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
After the court upheld solicitor-client privilege and the act as unconstitutional in 2015, the act, noted Warren, was amended and the provisions requiring lawyers to report on their clients repealed.
“The case raises many of the same issues that were at play in the Federation’s successful challenge to the application of provisions” in the act, the federation stated.
For its part, the attorney general opposed the injunction.
Parliament enacted the amendments to improve the gathering of relevant information to assist the CRA to respond to tax risks. The lack of timely, comprehensive and relevant information on aggressive tax planning strategies is one of the main challenges faced by tax authorities worldwide, including the CRA, the government stated in its response to the injunction application.
Government said the 2013 reporting requirements have not been “sufficiently robust to address Canada’s concerns.”
While law societies oppose the reporting requirements, the new laws would also apply to notaries.
Ron Usher, general counsel for the Society of Notaries Public of B.C., told Glacier Media his society welcomes the new requirements, and he does not view them as being substantially different than the old requirements.