CRA raid highlights lack of accountant-client privilege

A recent Canada Revenue Agency raid on a Halifax branch of Grant Thornton emphasizes a key difference between lawyers and accountants in terms of the protection afforded client files.

“Clients of a Canadian tax law firm enjoy solicitor-client privilege,” writes David Rotfleisch of Toronto tax boutique Rotfleisch & Samulovitch in a client bulletin. “On the other hand, the files of an accountant can and will be seized by CRA and their contents will form part of a tax evasion prosecution. This will include any notes of meetings or conversations taken by the accountants or tax planning memos.”

The CRA acted on the basis of a search warrant allowing the agency to seize Grant Thornton records relating to allegations that a certain client had committed offences under the Income Tax Act.

“Although the accountants had not been accused of any offences or implicated in any wrongdoing nevertheless a search warrant allows CRA to take files of any accounting clients named in the search warrant,” Rotfleisch writes. “CRA would normally execute simultaneous search warrants at the home and business premises of the taxpayer, and would seize any computers found. This can cause a disruption in the business operations of the taxpayer.”

By contrast, communications between tax lawyers and their clients, as well as files and documents relating to or prepared for the client, cannot be seized by the CRA. Accountants can take advantage of that privilege if a lawyer retains the accountant on behalf of the taxpayer.

“It’s important that first the tax lawyer be retained, and then the tax lawyer can enter into a written retainer with the accountant,” Rotfleisch writes. “In this way the files and correspondence of the accountant will enjoy the benefit of the solicitor client privilege and will not be subject to seizure by CRA.”

Solicitor-client privilege is so sacrosanct in Canada that the Supreme Court of Canada has, as recently as last November, affirmed that legislation attempting to order production of privileged documents must be express and clear. And even where legislative language is express and clear, legislation abrogating the privilege may be unconstitutional.