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Overview: Accountant Privilege, CRA Compliance Orders, and the Income Tax Act
The Federal Court’s June 12, 2026 decision in Minister of National Revenue v KPMG Canada LLP, T-139-26, is a significant ruling on the limits of privilege assertions by third-party tax advisors in the context of CRA audits.
The case arose from a Requirement for Information (RFI) issued by the Canada Revenue Agency (CRA) to KPMG Canada LLP under subsection 231.2(1) of the Income Tax Act (ITA), requiring KPMG to produce documents and information related to services it had provided to certain taxpayers under audit for their 2019 and 2020 taxation years. KPMG refused, claiming privilege on behalf of third parties. The court granted the CRA’s application for a compliance order under section 231.7 of the ITA.
At its core, this case highlights one of the most misunderstood distinctions in Canadian tax law: accountants, including those at major professional services firms such as KPMG, do not hold solicitor-client privilege and cannot shield their work product or communications from CRA scrutiny by asserting that privilege. That protection belongs exclusively to tax lawyers.
Taxpayers who rely on accounting firms as their primary tax advisors — without retaining a Canadian tax lawyer — may find themselves with far fewer protections when the CRA comes knocking.
Background: CRA Audit, the Requirement for Information, and KPMG’s Refusal
A Requirement for Information (RFI) is a formal written demand issued by the CRA under subsection 231.2(1) of the ITA requiring a named person — whether the taxpayer under a tax audit or a third party such as a bank, accountant, or other service provider — to produce specified documents and information within a stated time. An RFI is not a request or an invitation; it is a legally binding instrument. Failure to comply exposes the recipient to a compliance order application in the Federal Court under section 231.7 of the ITA. RFIs are routinely used in the CRA tax audit process to gather records that may not be in the taxpayer’s own hands, and the power extends broadly to any person who may hold information relevant to the administration or enforcement of the ITA.
The facts giving rise to MNR v KPMG are straightforward. The CRA was auditing certain taxpayers for their 2019 and 2020 taxation years. As part of that audit, the CRA issued an RFI on April 25, 2024, to KPMG Canada LLP under subsection 231.2(1) of the ITA. The RFI was directed at KPMG as a third-party tax advisor, requiring it to produce what the court termed the “Required Material” — documents and information related to services KPMG had provided to the taxpayers being audited.
KPMG declined to produce the Required Material. Its stated basis was that a third party — the taxpayers — had asserted solicitor-client privilege, or other unspecified privilege, over all responsive documents and information described in the RFI. KPMG produced a privilege log listing over 900 documents of unknown length or complexity. The taxpayers themselves subsequently provided 90 of those 900+ documents to the CRA, which then withdrew its demand for those 90 documents from KPMG. The remaining Required Material remained outstanding.
KPMG offered to provide the court with sealed copies of the documents on the privilege log for in camera review. The court declined to conduct its own in camera review given the volume of documents and the absence of sufficient evidence to properly assess the privilege claims. Instead, the court granted the application brought by a Canadian tax lawyer on behalf of the CRA and issued a compliance order requiring KPMG to produce the outstanding Required Material.
Key Issues and Findings: Can Accountants Assert Solicitor-Client Privilege Over Tax Documents?
The Statutory Framework: Sections 231.2(1) and 231.7
Subsection 231.2(1) of the ITA grants the CRA broad authority to require any person to provide information or documents that may be relevant to the administration or enforcement of the ITA. This power extends not only to taxpayers themselves but to third parties — including accountants, financial advisors, and other service providers — who may hold relevant records.
Section 231.7 provides a complementary enforcement mechanism. Where a person fails to comply with a requirement issued under section 231.2, the CRA may apply to the Federal Court for a compliance order compelling production. The threshold for obtaining a compliance order is relatively low: the CRA must establish that a valid requirement was issued, that the person received it, and that the person has not complied.
The court’s role in a section 231.7 application is not to conduct a wholesale merits review of the audit or to second-guess the CRA’s need for the documents. Its task is more constrained: to assess whether compliance should be ordered, and to determine whether any privilege claims are sufficient to override the production requirement.
Accountants Do Not Hold Solicitor-Client Privilege
This is the foundational legal reality that underpins the KPMG decision and that every taxpayer working with an accounting firm must understand. Solicitor-client privilege — the protection that shields communications between a client and their lawyer from compelled disclosure — is a doctrine rooted in the professional and fiduciary relationship between solicitor and client. It is a legal privilege, not an accounting privilege.
Accountants, even highly qualified chartered professional accountants (CPAs) employed by major firms, do not hold solicitor-client privilege over their communications with clients or over the work product they generate. When KPMG prepared tax planning documents, correspondence, or analyses for its clients, those materials were not cloaked in solicitor-client privilege simply because KPMG was providing professional tax services. The privilege that KPMG sought to assert was not its own — it was a third-party privilege asserted on behalf of the taxpayers. And the court found that the evidence supporting those assertions was wholly inadequate.
The contrast with a tax lawyer could not be more stark. When a taxpayer retains an experienced Canadian tax lawyer to provide tax planning advice, legal opinions, or assistance with a tax dispute, the communications between the lawyer and the client are protected by solicitor-client privilege — one of the most robust evidentiary protections known to Canadian tax law. That privilege can only be waived by the client, and it survives even after the professional relationship ends.
Lawyer vs. Accountant: A Privilege Comparison for Canadian Tax Purposes
The following table summarizes the key privilege distinctions between a Canadian tax lawyer and a Canadian accountant (CPA). These distinctions are directly relevant to any taxpayer deciding how to structure their advisory relationships before or during a CRA audit.
| Attribute | Canadian Tax Lawyer | Canadian Accountant (CPA) |
|---|---|---|
| Solicitor-client privilege | Yes — full protection for legal advice communications | No — no solicitor-client privilege of any kind |
| Who holds the privilege | The client (lawyer cannot waive it unilaterally) | N/A — privilege does not arise |
| Duration | Permanent — survives end of retainer, even death of client | N/A |
| CRA can compel production | Only if privilege waived or never attached | Yes — subject to valid RFI under s. 231.2(1) ITA |
| Litigation privilege | Yes — where dominant purpose is anticipated litigation | Rarely, if ever — most accounting work is not litigation-preparation |
| Work product protection | Strong — legal memoranda, opinions, strategy documents protected | None — tax returns, planning documents, correspondence fully producible |
| Charter protections (Jarvis) | Fully engaged once CRA shifts to prosecutorial purpose | Limited — Jarvis protections are lawyer-mediated in practice |
| Compliance order exposure (s. 231.7) | Minimal for privileged documents | High — court will order production absent established privilege |
| Third-party RFI vulnerability | Lawyer may resist on privilege grounds with legal authority | Accountant has no independent basis to resist; third-party privilege must be established by client |
| Ability to create new privilege going forward | Immediate — any new retainer creates protected advisory channel | Never — retaining an accountant creates no privileged channel regardless of timing |
This table makes plain why retaining an experienced Canadian tax lawyer at the outset of any CRA audit — rather than relying exclusively on an accounting firm — is not merely a strategic preference but a legally meaningful decision with concrete evidentiary consequences.
The Inadequacy of a Bare Privilege Log
In MNR v KPMG, KPMG offered a privilege log of over 900 documents as its basis for resisting production. The privilege log, however, was described as listing documents of “unknown length or complexity.” No affidavit evidence was filed by KPMG or the taxpayers adequately explaining, on a document-by-document or even category-by-category basis, why each listed item was properly subject to solicitor-client privilege or any other recognized privilege.
The court found that, without sufficient evidence to assess the privilege claims, it was not in a position to conduct its own review of the documents to determine whether proper privilege had been established. A bare privilege log — particularly one listing 900+ documents with no supporting analysis — is insufficient to discharge the burden of establishing privilege. Privilege is not presumed; it must be established.
This is an important practical point. Taxpayers and their advisors who resist CRA production demands must be prepared to file substantive evidence, not merely a list of document titles. The court will not assume that privilege attaches simply because an accounting firm says so.
Other Privilege Claims
The court’s analysis also extended to whatever “other privilege” KPMG sought to assert on behalf of the taxpayers beyond solicitor-client privilege. No recognized common-law privilege — whether litigation privilege, settlement privilege, or otherwise — was adequately established on the record before the court. Litigation privilege, for example, requires that the dominant purpose of creating the document was preparation for reasonably anticipated litigation. Documents prepared by an accounting firm in the course of routine tax planning or compliance work will rarely qualify.
| ⚖️ Quebec Sidebar: Notarial Privilege and the Limits of the Chambre des notaires Analogy Taxpayers and advisors in Quebec sometimes raise the Supreme Court of Canada’s decision in Chambre des notaires du Québec v Canada (Attorney General), 2016 SCC 48, as authority for a broader form of professional privilege that might extend beyond lawyers to other regulated professionals. That argument is largely misplaced in the tax context, and understanding why matters for any Quebec-based taxpayer facing a CRA requirement.In Chambre des notaires, the Supreme Court struck down provisions of former ITA sections 231.2, 231.7, and 232 to the extent they compelled notaries in Quebec to disclose confidential client documents without adequate privilege protections. The court held that Quebec notaries, as members of a civil-law profession governed by the Code des professions, hold a form of professional secrecy (secret professionnel) that, in the context of their legal advisory functions, is constitutionally analogous to solicitor-client privilege and must be accorded similar protection. The critical qualifier is “legal advisory functions.” The Chambre des notaires protection attaches to Quebec notaries when they act in their capacity as legal advisers — drafting wills, notarial contracts, legal opinions — not when they perform accounting, administrative, or financial functions. Crucially, the decision does not extend notarial-style privilege to accountants, financial planners, or other non-legal professionals. A Quebec CPA providing tax advisory services remains as exposed to CRA production demands as a CPA anywhere else in Canada. Moreover, Parliament responded to Chambre des notaires by amending the ITA to introduce specific notary-privilege provisions. Those amendments are carefully calibrated to the notarial profession under Quebec civil law and do not signal any broader legislative intent to recognize accountant privilege. The takeaway for Quebec taxpayers is narrow but important: if your tax advisor is a Quebec notary providing services that fall within their legal advisory mandate, some privilege protection may apply. If your advisor is an accountant — even one based in Quebec — Chambre des notaires offers no shelter. |
Implications for CRA Audit Enforcement and Third-Party Production Orders
CRA’s Broad Powers to Compel Third-Party Records
The KPMG decision reinforces the breadth of the CRA’s audit and enforcement powers under the ITA. The CRA routinely issues RFIs not only to taxpayers themselves but to banks, financial institutions, lawyers (within the limits of solicitor-client privilege), accountants, and other third-party service providers. The fact that documents are held by a respected professional services firm does not diminish the CRA’s entitlement to them, absent a properly established and documented privilege claim.
Taxpayers who structure their affairs through accounting firms, believing that those firms’ files are somehow insulated from CRA scrutiny, are operating under a significant misconception. Unless those files are also covered by legal privilege — which requires engagement with a lawyer, not merely a CPA — they are potentially producible to the CRA.
The Danger of Blanket Privilege Assertions
A recurring theme in CRA compliance order applications is the assertion of blanket privilege over entire categories of documents without adequate particularization. Courts have consistently declined to uphold such blanket assertions. MNR v KPMG is consistent with that line of authority. Where a taxpayer or its advisor asserts privilege over hundreds or thousands of documents without explaining, at least at a categorical level, why the privilege applies, courts will not do the work of establishing privilege on the asserting party’s behalf.
Strategic Considerations for Taxpayers Under Audit
Taxpayers who receive notice of a CRA requirement directed at their accounting firm face a set of strategic decisions that should be made in consultation with an experienced Canadian tax litigation lawyer. Among those decisions:
- Whether to engage immediately with a tax lawyer who can provide legally privileged advice about responding to the RFI
- Whether and how to particularize privilege claims with supporting evidence, including affidavits
- Whether documents can be produced voluntarily in a controlled manner (as 90 of the 900+ documents in KPMG were) to limit the scope of the compliance order application
- Whether a judicial review or appeal of any compliance order is appropriate on the specific facts
These decisions carry significant legal consequences and should never be made without qualified legal counsel.
Takeaways: Lessons for Canadian Taxpayers and Tax Advisors on Privilege and CRA Compliance
Minister of National Revenue v KPMG Canada LLP delivers several clear takeaways for taxpayers and their advisors.
Accountants do not hold privilege. The single most important lesson from this case is that accountants — no matter how prestigious the firm — do not enjoy solicitor-client privilege over their communications and work product. Only a lawyer can provide legally privileged tax advice. Taxpayers who rely exclusively on accounting firms for tax planning advice are, from a privilege standpoint, operating without a safety net.
A privilege log is not enough. Asserting privilege is not the same as establishing it. A privilege log listing document names, without supporting affidavit evidence explaining the basis of privilege on a document-by-document or meaningful categorical basis, will not withstand a compliance order application.
Section 231.2 reaches broadly. The CRA’s information-gathering powers under the ITA are extensive. They reach not only taxpayers but third-party service providers. Structuring affairs through multiple entities or advisors does not insulate documents from production.
Voluntary production can limit exposure. The fact that the taxpayers produced 90 documents and thereby removed them from the scope of the compliance order application is instructive. In appropriate cases, strategic and voluntary partial production can limit the footprint of a compliance order.
Engage a tax lawyer early. The best time to engage an experienced Canadian tax litigation lawyer is before an audit becomes adversarial — not after a compliance order has been issued. Early legal involvement allows for the creation of genuine legal privilege over advice and strategy going forward, and allows for a principled and evidence-based response to any RFI.
Pro Tax Tips: Protecting Yourself When the CRA Issues a Requirement for Information to Your Accountant
When the CRA issues an RFI to your accounting firm, the instinct to assert blanket privilege is understandable but legally dangerous if not supported by evidence. Here is what sophisticated taxpayers — and the experienced Canadian tax lawyers who advise them — know.
Solicitor-client privilege is prospective as well as retrospective. While documents already in your accountant’s hands may not be privileged, any new communications with a tax lawyer about how to respond to the RFI will be. Retaining a knowledgeable Canadian tax litigation lawyer at the first sign of audit activity creates a protected advisory relationship for everything that follows.
Privilege logs must be defensible, not merely voluminous. If you are going to assert privilege over documents in your accounting firm’s files, you need affidavit evidence from someone with personal knowledge — typically in-house counsel or a lawyer who was involved in the communications — explaining why each document or category of documents is properly privileged. Courts are not sympathetic to bald assertions.
Partial production is a legitimate strategy. As MNR v KPMG illustrates, voluntarily producing documents that are not genuinely privileged can narrow the scope of a compliance order proceeding and demonstrate good faith to the court. It is far better to produce non-privileged documents proactively than to have a court order wholesale production.
The Jarvis principle matters here too. The Supreme Court of Canada’s decision in R v Jarvis, 2002 SCC 73, established that once a CRA audit crosses the line from an administrative inquiry into a criminal investigation, the protections of section 7 and section 8 of the Canadian Charter of Rights and Freedoms are engaged. If the audits of the taxpayers in KPMG had taken on a prosecutorial character, the analysis of compelled production from a third-party advisor could have been more nuanced. Taxpayers facing audits that may escalate into criminal investigations should retain an experienced Canadian tax litigation lawyer immediately, before making any representations to the CRA.
As a Certified Specialist in Taxation, I have seen too many taxpayers discover the limits of accountant privilege only after the CRA has obtained a compliance order against their advisor. By that point, their options are significantly constrained. The time to address privilege, document management, and CRA audit strategy is at the very beginning of the process — not after a court has ordered production.
| “There is one carefully structured arrangement that can extend solicitor-client privilege to an accountant’s work — and at Rotfleisch & Samulovitch P.C., we use it deliberately on sensitive files such as voluntary disclosures, unreported income matters, and complex offshore situations. Where an accountant’s analytical or forensic work is necessary to enable me, as the lawyer, to provide proper legal advice to the client, I retain the accountant directly as part of my legal team. The accountant works under my direction and as my agent in the provision of legal services, not as an independent advisor to the client. In that structure, the accountant’s communications and work product fall within the umbrella of my solicitor-client privilege with the client, because the accountant is functioning as an extension of the lawyer rather than as a standalone professional. This approach is well established in Canadian and Commonwealth jurisprudence. The limit of this arrangement is equally important to understand. It works only because the lawyer retains the accountant — not the other way around, and not concurrently. If a client independently retains an accountant and separately retains a lawyer, and those engagements run in parallel, the accountant’s files are not privileged regardless of the lawyer’s involvement. The privilege umbrella does not extend laterally to an accountant who was retained by and reports to the client. It extends only downward from the lawyer to professionals the lawyer has engaged as part of the legal advisory mandate. Taxpayers who have already retained their accountant independently and then come to me for legal help are in a structurally different — and more exposed — position than those who engage me first and allow me to bring in the accounting expertise my legal mandate requires.”— David J. Rotfleisch, Certified Specialist in Taxation, Rotfleisch & Samulovitch P.C. |
Frequently Asked Questions: Accountant Privilege, CRA Requirements, and Compliance Orders
Does my accountant have solicitor-client privilege over my tax documents?
No. Solicitor-client privilege belongs exclusively to lawyers and their clients. An accountant — regardless of their qualifications or the size of their firm — does not hold solicitor-client privilege. Documents prepared by your accountant and communications between you and your accountant are generally not protected from CRA disclosure demands.
Can the CRA force my accountant to hand over my tax files?
Yes. Under subsection 231.2(1) of the ITA, the CRA has broad authority to require third parties, including accounting firms, to produce documents and information relevant to a tax audit. If the accountant refuses, the CRA can apply to the Federal Court for a compliance order under section 231.7 compelling production.
What is a compliance order under section 231.7 of the ITA?
A compliance order is a court order issued by the Federal Court requiring a person who has failed to comply with a CRA requirement (issued under section 231.2 or related provisions) to comply. It is an enforcement mechanism, not a penal order in the first instance, though non-compliance with a court order carries serious legal consequences.
What is the difference between solicitor-client privilege and litigation privilege?
Solicitor-client privilege protects confidential communications between a lawyer and client made for the purpose of obtaining or giving legal advice. It is permanent and can only be waived by the client. Litigation privilege is narrower: it protects documents and communications created for the dominant purpose of existing or reasonably anticipated litigation. It expires when litigation concludes. Neither form of privilege attaches to communications between an accountant and a client.
What should I do if the CRA issues an RFI to my accounting firm?
You should retain an experienced Canadian tax litigation lawyer immediately. A knowledgeable tax lawyer can assess whether any of the documents may be properly subject to privilege, advise you on the strategic implications of the RFI, assist in preparing a defensible privilege log if appropriate, and represent you in any compliance order proceedings.
Can a taxpayer waive privilege over documents held by their accountant?
A taxpayer can waive privilege over documents that are properly subject to privilege. However, since documents held by an accountant are generally not subject to solicitor-client privilege in the first place, there is typically nothing to waive. The real issue is that the documents are exposed to CRA production from the outset.
What makes a privilege log legally sufficient?
A legally sufficient privilege log must, at minimum, identify each document claimed to be privileged, describe the nature of the document, identify the parties to the communication, and explain the basis on which privilege is claimed — with sufficient particularity to allow the court to assess the claim. Courts have repeatedly held that bare document lists without supporting affidavit evidence are insufficient.
Does it matter that KPMG is a large accounting firm rather than a solo practitioner?
No. The size or prestige of an accounting firm does not affect the privilege analysis. Solicitor-client privilege is a function of the professional relationship between a lawyer and client, not of the scale of the advisor’s practice. KPMG’s status as one of the world’s largest professional services firms conferred no additional privilege protection.
What is the significance of the taxpayers producing 90 documents voluntarily?
The voluntary production of 90 documents by the taxpayers narrowed the scope of the compliance order proceeding. Documents that had already been produced to the CRA were no longer in dispute. This illustrates a practical strategy: voluntary production of non-privileged documents, in a controlled and strategic manner, can limit the adversarial scope of a compliance order application.
Can an accountant’s work ever be covered by solicitor-client privilege?
Yes, but only in a specific and carefully structured arrangement. Where a tax lawyer retains an accountant directly — as part of the lawyer’s own legal team, to assist in providing legal advice to the client — the accountant’s communications and work product can fall within the umbrella of the lawyer’s solicitor-client privilege with the client. The accountant must be working under the lawyer’s direction and as the lawyer’s agent, not independently. This arrangement is used in sensitive files such as voluntary disclosures and unreported income matters. It does not arise automatically from the fact that both a lawyer and an accountant are advising the same client. If the client retains the accountant independently and the lawyer separately, the accountant’s files remain unprotected regardless of the lawyer’s involvement.
Does the Supreme Court’s decision in Chambre des notaires give Quebec accountants any privilege protection?
No. Chambre des notaires du Québec v Canada (Attorney General), 2016 SCC 48, recognized a constitutionally grounded form of professional secrecy for Quebec notaries acting in their legal advisory capacity. It does not extend to accountants or CPAs, whether in Quebec or elsewhere. The decision is specific to Quebec notaries performing legal — not financial or accounting — functions. A CPA in Montreal providing tax planning services is no more privileged than a CPA in Toronto.
Can a compliance order be appealed?
A compliance order issued by the Federal Court may be subject to appeal to the Federal Court of Appeal. However, appeals are not automatic and must be based on an error of law or a palpable and overriding error of fact. Given the deferential standard of review applied to discretionary interlocutory orders, appeals of compliance orders face a high threshold.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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