Thank you very much, Mr. Chair. It's nice to see you again.
I'm here with my colleague, Matthew Wylie, from the Law Society of Ontario. We are speaking to the new mandatory disclosure provisions in Bill C-47.
I'd like to start with a few words about the Law Society of Ontario and the obligations of our members.
The law society regulates almost 70,000 lawyers and paralegals in the public interest. We protect the public, in part, by setting and enforcing standards of ethical conduct for lawyers. Lawyers have duties to keep client information confidential, to protect the client's privilege, to avoid conflicts of interest with their clients and to avoid assisting the client in dishonest or illegal conduct. These duties, along with the legal protection afforded to solicitor-client privilege, allow for the free and frank exchange of information between lawyers and their clients. Most importantly, they enable lawyers to serve as safeguards in the legal system. Clients can seek legal counsel with the benefit of full disclosure; in response, the lawyer provides advice that ensures the bounds of the law are protected and adhered to.
This dynamic is undermined by the proposed amendments to the mandatory disclosure rules in the Income Tax Act. As you are aware, the proposed amendments significantly broaden the instances in which lawyers would be required to report to the CRA on certain client transactions. They impose new reporting requirements on lawyers. The amendments could impact a significant number of transactions conducted daily in large and small law offices across the province.
In many cases, the amendments could work like this: The lawyer provides advice that the transaction—the one the client is engaged in—is compliant with the Income Tax Act. The lawyer could be required to report the transaction to the CRA, so the CRA could then challenge the lawyer's conclusion after the fact, to the detriment of the lawyer and the client. If the lawyer does not report, they and their client can face very significant penalties.
In our view, these amendments are counterproductive to the overall goal of encouraging compliance with the requirements of the Income Tax Act. If these amendments are adopted, clients may fear that their lawyers will report confidential information to the CRA. They may well avoid the essential step of seeking legal advice to determine whether their proposed course of action is, in fact, compliant, or they may withhold information that prevents the lawyer from providing the proper legal advice. In either case, the taxpayer will not have the benefit of the lawyer properly advising them on their existing reporting obligations in the legislation.
Although we recognize the protection afforded to solicitor-client-privileged information in the proposed amendments, the extent of the privilege is uncertain and, in our view, not a solution in this situation. We are also concerned about the constitutional validity of the new proposed mandatory disclosure provisions. In the case of Canada v. the Federation of Law Societies, the Supreme Court found “as a principle of fundamental justice that the state cannot impose duties on lawyers that undermine their duty of commitment to their clients' causes.” The court said this duty “is essential to maintaining confidence in the integrity of the administration of justice.” The proposed amendments require lawyers to report to the CRA on their clients' transactions, so the CRA can then scrutinize the transactions for impropriety. This requirement imposes an obligation on lawyers to act contrary to their “commitment to their clients' causes.”
The Law Society of Ontario offers two proposals for the committee to consider as fixes to these significant concerns.
Our preferred solution is to amend the definition of “advisor” under clause 68 and clause 69 of Bill C-47 to specifically exempt legal professionals from the reporting requirements when they are acting in their capacity as legal counsel.
The second option would be to maintain the relieving rule for lawyers, so that lawyers' compliance with the reporting requirements could be established by the lawyer's advising their client of the obligation to report the transaction to the CRA.
I'd be happy to provide further details about these solutions in the Q and A. Those are my remarks. Thank you very much for your time.