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Privilege and Marketing Tax Services

Should the legal profession use the existence of privileged communications as a marketing tool? Admittedly, privilege is a powerful right that can protect clients from having their statements or opinions used against them in court. However, not all clients need this protection and many professions (including both lawyers and accountants) are ethically bound by duties of confidentiality. I submit that using privilege as a marketing trump card is ingenuous and, unless privilege is necessary, could sometimes be a disservice to the client.

Solicitor-client privilege, a right established at common law, is well recognized in Canada as a quasi-constitutional right that enables clients to communicate with their lawyer without the fear that such communications will be used against them in court. The right to this privileged communication belongs to the client and not the lawyer. Of course privileged communication is different from the duty to maintain client confidences and secrets: privilege exists in the rules of evidence, while confidentiality exists in the rules of professional conduct.

As a non-lawyer, I have always been fascinated with the history of solicitor-client privilege in Canada and its application in tax matters. I’m a voracious reader of cases involving privilege and the historical evolvement of privilege. Why am I interested? Because a client’s communication with a non-lawyer, generally, is not privileged and I’m ultimately interested in the policy reasons why. After 20+ years of study, I’m convinced that privileged communications are a foundational right that should generally be available only to lawyers and not to other professionals or occupations. Years ago, when I first became interested in the topic, I heard a lawyer tell a room full of tax accountants: “if you want privileged communications, go to law school.”  While I didn’t appreciate it at the time (or, frankly want to admit it), I think he was correct. 

In Canada, the practice of taxation (including advisory, tax preparation and limited tax dispute resolution) is dominated by accountants. Without the involvement of accountants, the whole taxation system in Canada would collapse as there are simply not enough tax lawyers in Canada to replace the accountants who practice in the area of taxation. As such, and in light of the overlap between the functions of tax lawyers and tax accountants, does it make good policy sense that client communications with tax accountants are not afforded privileged status? 

For reasons that I will not explain here, I think there are good policy reasons to exclude tax accountants from the privileged status afforded by the common law. However, I do believe that Canada should look at the experience of other countries when dealing with this very issue and consider a limited right of privilege. In New Zealand, the US and UK, for example, clients who communicate with their tax accountants (who meet certain criteria) are afforded limited statutory “confidentiality,” which is the term for limited evidentiary privilege in those jurisdictions The purpose of extending this limited privilege is to facilitate open and frank communication between taxpayers and their advisors without having to fear that statements will be used against them. The result is that the taxpayer and the advisor will have a better understanding of their obligations within the taxation system. Ensuring this open dialogue is the primary policy reason for limited privilege.

Admittedly the Canada Revenue Agency (CRA) and other tax collection authorities should be entitled to all the factual information needed to review a taxpayer’s situation; however, subjective information (such as views provided by the tax advisor or client) should generally not be part of the information that the CRA requires to form its own opinion.  CPA Canada, the Canadian national body for Chartered Professional Accountants, has and continues to study these issues and I’m hopeful that we will see some positive changes on such issues down the road. 

Various legal organizations diligently advocate for and ensure that the right of clients to have privileged communications with their lawyers is not diluted (either statutorily or through the courts). In light of its evidentiary underpinnings I appreciate the legal profession’s advocacy in this regard. 

However, what I don’t appreciate is how privileged communications in tax affairs are used as a marketing tool by lawyers and law firms. The pattern over the last decade or so is predictable. Whenever there is a court decision – and there are plenty of them – that continues to defend or assert that only lawyers have privileged communications in tax matters (and not accountants), the marketing machines of the law firms wake up and start writing articles that advocate for privilege to be limited to the legal profession. While the articles have different angles, the common theme goes something like this: a) lawyers are the only ones that have privileged communications; b) this recent case continues to affirm that; c) accordingly, don’t hire tax accountants, hire us. 

The problem I have with the standard law firm marketing messages is element c) above.  There are often very good reasons why clients should hire tax accountants and not tax lawyers. Or vice versa. From my perspective, when clients hire advisors to dispense tax advice, the analysis will usually – if not always – come down to whether or not the advisor is the best qualified and whether or not the client trusts the advisor. With few exceptions, the existence (or lack) of privilege is seldom a deciding factor for clients who wish to retain my tax services. Though if, in my experience, privilege is warranted I will seek ways to ensure that it is protected. The fact that I am part of a law firm full of lawyers makes it easier to ensure that such communications are privileged.

My overall point is this: marketing that privileged communications is the key to dispensing tax advice and therefore tax accountants shouldn’t be hired – and therefore law firms should – is not, in my view, in the best interest of the client. In my view, that is putting the proverbial cart before the horse. Clients are smarter than that and ultimately they will select the best tax advisor for them regardless of whether they are an accountant or a lawyer. Privilege is a client right, not a marketing tool. 

There……finally got that off my chest.