Do I Need a Tax Lawyer or an Accountant?
In our first discussion of when to hire tax lawyers, we discussed their experience in advocacy and knowledge of the legal avenues open to you to seek redress under Canada’s tax laws.
Here, we will discuss one of the most important differences between the two professions: Privilege.
What is Privilege?
As defined in the Income Tax Act itself: “solicitor-client privilege means the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person’s lawyer in professional confidence…”
This is a bit of a mouthful, but it basically means that, subject to certain exceptions, neither you nor your lawyer can be forced to disclose communications between each other that relate to receiving legal advice and that you intend to keep confidential. Courts take Solicitor-Client privilege very, very seriously, considering it to be a cornerstone of the legal system of almost constitutional status. This privilege lasts forever, and is extremely hard to bypass. Last year, the Supreme Court confirmed that even in the tax context, you have the right to expect your lawyer not to disclose information without your consent, and the Court shielded lawyers from a requirement to disclose their accounting records.
Accountants, by contrast, are not afforded the same degree of privilege (they lack what Canadian law calls a “class privilege”). And this is not for lack of trying; accountants have taken several runs up to Canadian appellate courts in the hope of receiving a similar privilege, but have not yet been successful.
Do I Need a Tax Lawyer, or an Accountant?
The Canada Revenue Agency (CRA) has incredible investigative powers; they can compel the production of documents that “may be relevant” from taxpayers, and third parties, including accountants. This casts a very wide net. You can find more information in the CRA’s publication here. If you are extremely confident in your tax position, and believe that an audit or reassessment is just a misunderstanding, an accountant may be able to sort the matter out. However, if you are at all uncertain about your position, filing an audit or objection through a tax lawyer will let you control the flow of information to the CRA and give you the best chance of winning.
When Having a Tax Lawyer Matters
You should note that, because of the structure of Canadian income tax, you are required to submit accurate tax returns and support your claims, whether or not you have discussed these returns with a lawyer. However, unlike in the case of an accountant, many other communications that are extremely relevant may be privileged for a tax lawyer- for example, you can communicate more freely with your lawyer in emails without fear that the CRA could force the disclosure of their contents. This means that you can discuss your tax position more freely and frankly with a tax lawyer, which, if you are not entirely sure which side of the line you are on, can make a huge difference. It means that advice you receive is given with a complete understanding of your position in mind.
Many accountants are highly experienced in handling the audit and objection process, and particularly when you are both very confident that you have meticulously followed the law and that the dispute was the result of a misunderstanding between yourself and the CRA, will be able to resolve these kinds of disputes. However, if you are uncertain about your tax position or are missing a few documents, using a professional who is not protected by solicitor-client privilege may allow the CRA to compel them to release records of these discussions, fatally weakening your case.
What about Tax Court?
If you will be going to court and have less than $24,000 in issue, an accountant can appear on your behalf in the Tax Court of Canada’s Informal Procedure. This is the Small Claims version of Tax Court. However, as detailed above, if you have a legal issue, a tax lawyer is likely better suited to take your case to the Tax Court of Canada. We believe very strongly in the advantage lawyers have when it comes to navigating the court system and appearing in Tax Court.
We hope that this information helps you decide on the tax professional that best suits your needs. We strive to help our clients take full advantage of their rights in disputes with the CRA, and to resolve disputes as quickly and favorably as we can. If you think a tax lawyer might be the right choice for you, consider reaching out to us at (416) 593-4357, scheduling an appointment, or firstname.lastname@example.org for a (privileged) discussion of your tax matter.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.