Update on Amendments to the Income Tax Act: Permanent Injunction Granted
November 29, 2023The Supreme Court of British Columbia has granted an injunction suspending the application of recently expanded mandatory reporting obligations in the Income Tax Act to members of the legal profession pending the outcome of litigation challenging the constitutionality of the provisions.
This legal challenge was initiated by the Federation of Law Societies of Canada in a lawsuit filed on September 11, 2023. A consent injunction obtained by the Federation was scheduled to expire on December 1, 2023.
The Federation is challenging the constitutionality of amendments to the Act that expanded existing mandatory disclosure obligations, created a new category of notifiable transactions, and delete a provision that relieved parties from the disclosure obligation when it had been fulfilled by another party to the transaction. The amendments came into force at the end of June.
The provisions require taxpayers and advisors, including legal counsel, to report to the Canada Revenue Agency on transactions that may constitute aggressive tax planning, purported to compel legal counsel to disclose confidential and potentially privileged client information to the government. This will undermine the duty of loyalty that members of the legal profession owe to their clients.
A copy of the November 24 decision is available here.
A detailed backgrounder from the Federation of Law Societies of Canada is available here.