Protecting CPAs using solicitor-client privilege

Dean Blachford is a senior tax lawyer at Blachford Tax Law, which specializes in helping individuals and businesses resolve significant tax disputes. He is on the Programs Committee for the Ottawa Chapter of CPA Ontario and previously participated in the Tax Court of Canada’s Law Clerk Program.

CHARTERED PROFESSIONAL ACCOUNTANTS often ask how they can ensure that the Canada Revenue Agency cannot access their work or correspondence during an audit or tax dispute involving their client. CPAs are right to be concerned. In recent years, the CRA has been more assertive in demanding information and documentation from CPAs. There have been cases in which the CRA obtained documents from Ernst & Young LLP, KPMG, and Zeifmans LLP, among others. Moreover, the 2024 Federal Budget proposed even greater audit powers for CRA.

Retaining a tax lawyer can help protect CPAs from having to disclose their documents. While CPAs do not have solicitor-client privilege (“privilege”) with their clients, they can be enveloped into the privilege that a client has with their tax lawyer.

In this article, we explain the CRA’s audit powers; the legal status of privilege between clients and their lawyers; and how CPAs can be brought into that privilege. We also discuss important limitations to privilege of which many tax lawyers and CPAs are not aware, and provide practical tips on how to ensure that your clients’ privilege is not compromised.

CRA’s Audit Powers

The CRA can obtain tax, financial, and business-related documents and information during audits. This power stems from two provisions of the Income Tax Act[2]

Section 231.1 compels taxpayers to make their books, records, and documents available for examination.[1] 

Section 231.2 allows the CRA to issue Requests for Information (“RFI”) to third parties — such as CPAs and their firms — for information and documents pertaining to their clients.[2] 

The CRA does not need a court’s authorization to issue RFIs but can obtain an order from the Federal Court if the taxpayer or their CPA firm refuses to comply. Under proposed section 231.9, CRA will be able to issue a notice of non-compliance, with penalties, to taxpayers who do not comply.

The CRA can even require CPA firms to turn over documentation related to taxpayers not in an audit. In Zeifmans LLP v MNR, 2021 FC 363, the Federal Court required Zeifmans LLP to provide CRA with documents related to its client as well as all entities connected to their client. Zeifmans LLP argued this was a fishing expedition to identify future audit targets, but the Federal Court rejected this defence.[9]

Privilege as a Defence to CRA Audit Powers

One effective way to mitigate CRA’s audit powers is privilege. Privilege authorizes lawyers to refuse to disclose documents, correspondence, and information to CRA if they were exchanged in confidence between the lawyer and the client.[10] Privilege has existed for centuries, it promotes full and free communication between clients and their lawyers.[11] The courts have held that privilege has a “quasi-constitutional status” and therefore must be “as close to absolute as possible.”[12]

A party seeking privilege must show that the communication meets three criteria:

1. It occurred between a client and lawyer
2. Its purpose was to seek or provide legal advice
3. The parties intended the communication to remain confidential[13]

Enveloping CPAs in a Client’s Privilege

While accountant-client privilege does not exist, CPAs may be enveloped into privilege if they are the client’s agent pursuant to an agency agreement.[14] An agent is someone who performs tasks for or in place of another, the principal.[15] As an agent, a CPA is an “interpreter of information” or “conduit of advice” between the lawyer and the client.[16]

Alternatively, some tax lawyers retain the CPA directly, instead of the client entering an agency agreement with the CPA. The downside of this approach is that, if the CPA is copied on correspondence between the client and the lawyer, or attends meetings, those communications are no longer privileged because they no longer meet the third requirement that the client and the lawyer intend the communication to remain confidential. The participation of the CPA vitiates the privilege.

Once an agency agreement is in place, the correspondence between the lawyer, client, and agent are protected by privilege, even if all three parties are not involved in a particular communication.[17] In Stack v The King, 2024 TCC 137 the Tax Court concluded that an email from the lawyer to the CPA, who was acting as the client’s agent, was protected by privilege, even though the client was not copied on the email.[18] Similarly, an email from the client to their CPA benefitted from privilege, even though the lawyer was not copied.[19] The Tax Court held that both emails were privileged because they existed in the same “continuum of communication” in which the lawyer provided the client legal advice.[20]

Limitations of Privilege

Even where a CPA has an agency agreement with the client, not all the CPA’s correspondence is necessarily privileged. If the CPA prepares correspondence that does not interpret information or convey the lawyer’s legal advice, that correspondence is outside their scope as an agent, and therefore not protected.

The risk is similar where a lawyer retains a CPA directly, particularly if the lawyer then shares the CPA’s work with the client.

Original and Independent Advice

Where a CPA provides "original and independent tax planning" advice, this correspondence will not be privileged.[21] In Coopers Park Real Estate Development Corporation v His Majesty the King, 2024 TCC 122,[22] the Tax Court held that various letters, research, and draft memorandum that KPMG Accounting had sent to the taxpayer’s law firm contained the “hallmarks” of independent advice.[23] Since providing independent advice is not interpreting information or acting as a conduit of advice, a CPA firm cannot be acting as an agent while providing such advice.[24] Therefore, that correspondence is not protected by privilege.

Business Advice

For similar reasons, privilege does not protect CPAs when they are providing business advice. In Canada (National Revenue) v Atlas Tube Canada ULC, 2018 FC 1086, Ernst & Young LLP Accounting (“EY Accounting”) prepared a due diligence report that advised Atlas on how to proceed with an mergers & acquisitions (“M&A”) transaction.[25] The Federal Court concluded that, since EY Accounting’s dominant purpose behind the report was to advise Atlas on whether to proceed with the M&A, at what price, and how to structure it,[26] the report was business advice and therefore not subject to privilege.[27]

Practical Steps for CPAs to Protect Privilege

Given the benefits and limits of privilege here are six practices for CPAs to adopt:

1. Establish agency agreements: You should engage a tax lawyer and formalize agency agreements with clients that explicitly define your role as an agent for legal advice related to your client’s tax dispute.
2. Open a separate matter and keep a separate folder for documents and information related to the audit: If you were already working for the client, you should maintain clear separation between your non-privileged work and the privileged work. When documents and correspondences are intermingled, the task of retroactively distinguishing privileged correspondence increases the burden on your client.
3. Limit communications to the privilege envelope: You must restrict confidential communications to your client and their lawyer, ensuring no one outside the privilege envelope is included.
4. Communicate any business or tax planning advice separately: Do not include business or tax planning advice in the same document in which you provide information in your capacity as the client’s agent.

Dean Blachford is a senior tax lawyer at Blachford Tax Law, a firm dedicated to assisting individuals and businesses in resolving complex tax disputes with the CRA. He also authors The Blachford Brief, a quarterly e-newsletter that helps CPAs protect their clients from tax disputes. Safa Karim is a tax law intern at Blachford Tax Law and a 3L J.D. Candidate at the University of Ottawa, Faculty of Law.

Footnotes

Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024, 1^st Sess, 44th Parl, 2024 (assented to 20 June 2024); Vivian Esper, “Proposed legislation expanding the CRA's audit powers: pitfalls and takeaways” (29 January 2025).

[2] Canada Revenue Agency, “RC4188 - What you should know about audits” (16 October 2023).

[3] Income Tax Act, RSC 1985, c 1 (5th Supp), s 231.1.

[4] Income Tax Act, RSC 1985, c 1 (5th Supp), s 231.2.

[5] Zeifmans LLP v Canada (National Revenue), 2021 FC 363 at para 44 [Zeifmans].

[6] Supra note 3.

[7] Leandra Gupta & Roger Smith, “Implications of the Notice of Non-Compliance and the Compliance Order Penalty” (2024) 14:3 Can Tax Focus.; Esper, supra note 1.

[8] Chris Marta & Leonard Gilbert, Zeifmans – Request for Information on Unnamed Persons Issued to Accounting Firm (14 July 2021). 

[9] Zeifmans, supra note 5 at paras 43 and 67.

[10] ITA, RSC 1985, c 1 (5th Supp), s 232.

[11] Stack v The King, 2024 TCC 137 at para 8 [Stack].

[12] Canada (Attorney General) v Chambre des notaires du Québec, 2016 SCC 20 (CanLII), [2016] 1 SCR 336 at para 5.

[13] Canada (National Revenue) v Atlas Tube Canada ULC, 2018 FC 1086 at para 32 [Atlas Tube].

[14] Ibid at para 33.

[15] Canada Revenue Agency, Agents (21 November 2005).

[16] Atlas Tube, supra note 13 at para 33.

[17] Stack, supra note 11 at para 15.

[18] Ibid at para 14.

[19] Stack, supra note 17.

[20] Coopers Park Real Estate Development Corporation v His Majesty the King, 2024 TCC 122 at para 49 [Coopers Park].

[21] Amit Ummat, Tax Court of Canada Rules There is no Accountant-Client Privilege (14 November 2024).

[22] Coopers Park, supra note 20 at para 51.

[23] Ibid at para 85.

[24] Coopers Park, supra note 20 at para 52.

[25] Atlas Tube, supra note 13 at paras 1 and 7.

[26] Ibid at paras 36 and 51.

[27] Atlas Tube, supra note 13 at para 3.