Is Your Tax Planning Confidential?

March 9, 2017
Personal Tax Planning

Mark Feigenbaum

Are you taking precautions to ensure your personal or corporate tax planning is kept confidential? Cross-border wealth management is inherently complicated, so most people hire a professional to ensure they meet their tax obligations in both Canada and the United States. In the course of planning, highly private and confidential information is communicated to your tax professional.

A 2016 appeal decision has confirmed that accountant’s files are not protected by privilege, and the best way to keep your personal information confidential is to hire a tax lawyer in the first instance.

Accountants, lawyers and confidentiality in tax planning

While accountants have a professional obligation to maintain the confidentiality of their client’s file, this does not defeat a request for documents relevant to ongoing litigation. If a company is under investigation, or involved in a law suit, there are legislative mechanisms to obtain these documents despite the professional requirements of confidentiality.

The relationship between a lawyer and their client is different, and accorded a unique level of confidentiality, or privilege. Communications between a lawyer and their client, as well as anything done by the lawyer on behalf of advancing the client’s interests, will not be disclosed, even in the course of litigation. This relationship facilitates tax planning by encouraging clients to provide complete information to their lawyers, who are then better able to provide advice.

When is your accounting information not privileged?

In this case, Redhead Equipment v Canada (Attorney General), a company had been asked to disclose documents produced by its accountants in the course of a transaction that was being facilitated by their lawyers. The Saskatchewan Court of Appeal was asked whether the information communicated in these transactions was subject to the special privilege given to a lawyer and client. If not, then it was information could be disclosed to the CRA.

Ultimately, the court found that the documents were not protected by privilege, even though the transaction had been facilitated through the company’s lawyers. Lawyer-client privilege does not apply to accounting opinions that merely come in to the possession of a lawyer, and they do not become privileged simply because a lawyer is the party requesting the opinion. In order for communications with an accountant, or other third party, to remain confidential, the third party must have been interpreting client information on behalf of a lawyer, or acting as a conduit for legal instructions from the client or advice from the lawyer.

How to protect your confidential information in wealth management and tax planning

While the nuance of the court’s decision is complex, there is one simple takeaway to help ensure your tax planning information is kept between yourself and your planner: Hire a tax lawyer first. They will be able to retain accounting and other experts, if necessary, to ensure your needs are met. If your lawyer needs to ask another professional to assemble or interpret information on your behalf, this will also be protected.

Our cross-border lawyers specialize in personal and corporate tax planning.  If you have questions about your wealth planning, our team can provide expert advice and help build a plan to meet your unique needs. Contact us online, or toll free at (877) 275-4792.


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