BMO Nesbitt Burns – Federal Court rejects a claim that providing a full spreadsheet would breach privilege or a requirement not to disclose uncertain tax positions

CRA brought an application pursuant to s. 231.7 seeking an order requiring BMO Nesbit Burns (“BMONB”) to provide an unredacted version of a spreadsheet in connection with CRA’s audit of suspected dividend rental arrangement transactions of BMONB. BMONB in response to the initial request made pursuant to s. 231.1 had redacted a column in the spreadsheet on the basis that it reflected written legal advice it had received from McCarthy’s and Torys.

In rejecting BMONB’s claim of privilege, Kane J stated that the spreadsheet was not more than the mere “operational outcome or end product of legal advice” and did not satisfy the requirement that it “communicate … the very legal advice given by counsel.”

Kane J also rejected some further submissions of the taxpayer.

First, in rejecting the BMONB submission that the Minister was precluded from relying on s. 231.1 or 231.7 because there was no open audit or inquiry (a notice of objection and appeal to the Tax Court having subsequently been launched), she indicated that she did “not agree that BMONB’s notice of objection puts an end to the Minister’s authority pursuant to sections 231.1 or 231.7,” noted that “[i]n the present case, the Minister made the request for information pursuant to section 231.1 in 2019, long before the reassessment or notice of objection, and stated:

[R]estricting a request for information to the pre‑assessment or pre-reassessment period would not be in the spirit of the Act, which gives broad powers to ensure the administration and enforcement of the Act, and could promote non‑compliance.

Second, although the spreadsheet had some aspects of a tax accrual working paper (“TAWP”) as considered in BP, there the “FCA’s caution was against imposing an obligation to self-audit”, whereas here “[u]nlike BP, the concerns arising from the tax year under audit have not been addressed … [and] the Minister has not sought access to the [spreadsheet] (whether or not it is a TAWP) without advancing a particular justification.”

Third, she rejected a submission that granting the requested production would undermine the discovery process in the Tax Court of Canada proceedings, which had procedural protections not set out in s. 231.1, stating that this interpretation had not been accepted in Cameco.

Neal Armstrong. Summaries of Canada (National Revenue) v. BMO Nesbitt Burns Inc., 2022 FC 157 under s. 232(1) – solicitor-client privilege and s. 231.7.