The Right of Access to Confidential Advice A Matter of Principle

1. The Right of Access to Confidential AdviceA Matter of Principle Gabe Hayos, FCPA, FCA, ICD.D Vice-President, Taxation, CPA Canada NYDCAA February 2014

2. The Agenda for Today Overview of Common Law Privilege The Current Environment The Need for Change International Developments Implications for Client Relationship CRA Audit Concerns The Case for Expanding a Taxpayer’s Confidentiality Rights Creating a Better Tax system The Public Interest Conclusion

3. Overview of Common Law Privilege Privilege - generally, a common law right of a person Why we care: To date, only lawyers are recognized (by the common law) to be able to assert privileged over tax communications. Accountants don’t have privilege. Without privilege, taxpayers may not tell the accountant all the facts and the quality of the advice will suffer.

4. Overview of Common Law Privilege Three pre-conditions to solicitor-client privilege: • a communication between lawyer and client; • which entails the seeking or giving of legal advice; and • which is intended to be confidential by the parties. Solosky v. The Queen, [1980] 1 S.C.R. 821 The privilege extends also to materials “directly related to the seeking, formulating or giving of legal advice or legal assistance”. Susan Hosiery Ltd. v. Canada, [1969] 2 Ex. C.R. 27.

5. Overview of Common Law Privilege WAIVER The privilege “belongs to the client” and can only be “waived by the client or through his or her informed consent”. Lavallee, Rackel & Heintz v. Canada, [2002] 3 S.C.R. 209 • Client’s voluntarily disclosure to a third party constitutes waiver; client’s compelled or unintended disclosure does not. Ultra Information v. Pushor Mitchell 2008 BCSC 974

6. Overview of Common Law Privilege LIMITS ON PRIVILEGE • No privilege attaches to communications that “are criminal or … made with a view to obtaining legal advice to facilitate the commission of a crime”. R. v. Campbell, [1999] 1 S.C.R. 565

7. Overview of Common Law Privilege “Headline Level” Understanding Affecting Accountants: Tower [2004] 1 F.C.R. 183 (F.C.A. 2003) • Accountants do not have common law or “class” privilege Prudential [2013] UKSC 1 • Recent case with similar finding in UK’s top court

8. The Public Interest The Public’s Interest in the Tax System • Equitable Treatment • Administrative effectiveness and efficiency • Everyone pays their fair share Our Commitment • A Better Tax System

9. CPA Canada and the Public Interest Protection of the public interest • A core value of CPA Canada and Provincial Institutes • Provincial Institutes required to monitor and regulate generally accepted standards and impose discipline, when required • A code of conduct is required of members • Best tax practices are under development now • Possible future generally accepted tax standards • Such standards then become part of the regulatory oversight of the profession.

10. Overview of CPA Canada Position • That taxpayers who can afford or can access a tax lawyer are being accorded a basic right that is denied to a taxpayer who cannot afford both a tax lawyer and an accountant or access a tax lawyer and, • That a taxpayer’s right of confidentiality will result in more tax compliance and higher tax revenues at a low cost and, • That the audit program’s need for information can be accommodated by the right to confidentiality

11. The Current Environment Confidential Communications with Taxpayers • Some taxpayers have a right of confidential communications while others do not. Fact • Vast majority of tax advice and tax reporting is provided by professional accountants • Many taxpayers cannot afford/cannot access tax advice from a lawyer practicing tax. Results • An inequitable treatment among taxpayers • Lack of full disclosure • Advice based on lack of information or misinformation • Disagreements with information requests by audit • Less opportunity to encourage compliance through advisors

12. The Need for Change Government of Canada and CRA Value Statements • Integrity and Respect • Taxpayer Bill of Rights: #15 Representation The Prudential Case • A matter of principle

13. The Need for Change Administrative Effectiveness / Efficiency • Vision 2020: CRA-tax advisor engagement • Tax advisors as instruments of the compliance effort • Many small individual adjustments yield major tax revenue increases at very little cost. • Effective at improving compliance without expensive audit resources.

14. International Developments

15. International Developments • Australia • United States • New Zealand • United Kingdom • Globalization

16. The International Landscape Summary Some form of statutory protection/recognition exists in: • Advanced English-speaking economies & tax systems; • Key trading partners; that • Share our common law tradition

17. Implications for Client Relationships

18. Implications for Client Relationships Times have changed. Profession now in a position to argue the community considers communication as warranting protection. Information has come to be recognized as a precious commodity in its own right, such that legislatures have felt the need to role out expansive privacy legislation. Recognized in the [1] CRA Fairness Pledge; [2] Taxpayer Bill of Rights; and [3] Commitment to Small Business.

19. Implications for Client Relationships Is this “broadening the shield against getting to the truth”? Section 230 says what books & records a taxpayer is required to keep, and how long they have to keep them. If they fail to do so, it is their problem: • can be punished with fines or imprisonment for doing so – section 238(1); • can be assessed solely on projections - section 152(7) “assessment not dependent on return or information” - with “cheerful disregard”: Biron [1985] 1 CTC 2914; • will not have ability/evidence to disprove assessment: Johnston [1948] (SCC); • at Tax Court, there’s nothing else to talk about: Ereiser 2013 DTC 5036 (FCA); • can’t develop, understand or explain their own position, or inconsistencies within it; • CRA can ask for an “adverse inference” to be drawn in a variety of forums; and • could be exposed to allegations of potential misrepresentations “attributable to neglect, carelessness or willful default in filing the return or supplying information”. In simple terms, the CRA doesn’t need facts. Clients needs facts … or else.

20. It’s All About the Client commentary suggesting that accountants might not deserve privilege, or would abuse it, is hurtful, demeaning and insulting, given the role accountants now play. given the choices taxpayers can make, could be a fiscal policy blunder - long term loss in taxpayer voluntary compliance. short term information power issue, pitting accountants against their own clients. What is really at stake, over the longer term, is how the larger public ultimately reacts/adapts to this reality, in an increasingly electronic [tax administration] information age.

21. It’s All About the Client Clients = “the public” - parties who can take discretionary deductions, who want to protect the capitalized value of small businesses • may currently be part of the underground economy, who may have undeclared income, who may have failed to file, etc. • accountants want to help these people, and be able to guide their paths towards proper, lawful tax compliance. • How well can play this role, if forced to report client circumstances at the CRA’s whim and/or thoroughly warn our clients that this could happen?

22. CRA Audit Concerns Access to necessary information • Tax avoidance • Tax evasion • Questionable transactions Delay and Obfuscation • As a shield to disclosure? CRA must have access to the facts

23. The case for expanding a taxpayer’s confidentiality rights

24. The Case for Expanding Privilege to Advice from Accountants • Consumer Choice: Provide taxpayers right to confidential advise from the qualified advisor of their choice. Taxpayer Bill of Rights #15 • Allow accountants to provide more complete advice based on full and frank discussions • Ensure International Competitiveness • Promoting better compliance • In conclusion, it is broadly in the public interest

25. CPA Canada Position Adopted a legislative solution that balances the taxpayer’s rights with the reasonable interests of CRA Apply to communications in respect of seeking tax advice

26. Where it stands and next steps

27. Where is CPA Canada on this initiative? Detailed Position Paper by recognized expert, law professor, completed A legislative framework proposed Outreach started with: • CRA/Department of Finance • Lawyers and law societies • Canadian Chamber of Commerce • Canadian Federation of Independent Business

28. Stakeholder Support - Canadian Federation of Independent Business - Canadian Chamber of Commerce • Taxation Sub-committee - Tax Executive Institute • Representations to Department of Finance - Member Survey • Views of our members - Other Individual Stakeholders • i.e Brian Arnold’s blog

29. Creating a Better Tax System: A Proposal Collaboration: CRA-CPA Canada • Provide a confidentiality right to millions of Canadians • Protect CRA’s right to access information for audit

30. The Public Interest A Core Value of CPA Canada and CRA • Enhanced taxpayers’ trust and confidence • A strengthened voluntary self-assessment system • An enriched source of tax advice • Equal treatment for all taxpayers • More taxpayer compliance, higher tax revenues • Lower compliance costs

31. Conclusion Next Steps • Understanding concerns • Developing a more detailed framework proposal • CPA Canada-CRA meeting to discuss the framework

32. Contact: Gabe Hayos, FCPA, FCA, ICD.D Vice President, Taxation 416-204-3404 ghayos@cpacanada.ca