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Federal tax changes unconstitutional, Canadian lawyers claim

The Canadian Federation of Law Societies claims tax changes threaten unreasonable search and seizure protections, freedom from restraint and protection of solicitor-client privilege.
Tax changes threaten people's relationships with their lawyers, a B.C. court petition asserts.

A new B.C. Supreme Court legal filing claims the federal government is unconstitutionally violating solicitor-client privilege in requiring lawyers to disclose certain financial transactions.

“Confidentiality is the cornerstone of the solicitor-client relationship and an essential element of the lawyer’s duty of commitment to the client’s cause,” said the petition filed by the Canadian Federation of Law Societies Sept. 11 challenging changes to the Income Tax Act brought in by the federal Liberal government.

“Under the new legislation, legal professionals will be required to disclose confidential information to the CRA (Canada Revenue Agency)," the petition said.

The Attorney General for Canada is named as the respondent. The current minister is Arif Virani.

The Attorney General’s office referred questions to the CRA.

The petition said the proposed amendments violate lawyers’ constitutional rights to commitment to a client’s cause, a violation of unreasonable search and seizure protections and a threat to freedom from restraint.

“The lawyer’s duty of commitment to a client’s cause is a recognized principle of fundamental justice that attracts constitutional protection,” the petition said. “The state cannot impose duties on lawyers that undermine their compliance with this duty.”

Further, the petition asserts, the amendments creates a “significant possibility” that confidential information could be used against clients leaving them subject to investigation, penalties, sanctions and even imprisonment.

The federation is the national association representing the 14 provincial and territorial legal profession regulators.

The petition said under the old legislation, there were reportable transactions known as avoidance transactions generally used for tax benefits.

Under that legislation, there was a requirement for the taxpayer to file a return on the reportable transaction. If a lawyer’s client did so, the lawyer was relieved of an obligation to file.

However, the petition said, the Liberal government in 2021 announced a proposal to ensure taxpayers’ reporting was complete. So, in April, the government introduced act amendments to add mandatory disclosure rules.

Those include requiring all advisors, including lawyers and accountants, to file returns regardless whether the other did or not.

The petition said this creates a conflict of interest for lawyers and dampens the ability of them to have free and open discussions with clients.

The amendments also increased penalties and lengthened the period for tax re-assessments. An advisor may be fined up to $110,000 and a person failing to file a report is liable to a fine up to $25,000 and a year’s imprisonment.

CRA response

Spokesperson Kristy Taylor told Glacier Media the CRA is responsible for administering the legislation as enacted by Parliament.

"Laws passed by Parliament are rigorously reviewed from a constitutional perspective prior to passage and the law in question is no exception," Taylor said.

"As the matter is currently before the courts, and the confidentiality provisions of the laws we administer prevent the CRA from disclosing taxpayer information, the CRA is not in a position to comment on the specific details of the court case," she said.

Taylor said the courts provide Canadians with an independent review of disputed issues, and court decisions serve to clarify the law or resolve disputes between the CRA and taxpayers.

The Canadian Taxpayers Federation declined to comment on the petition when sent a copy.

None of the assertions have been proven in court.