The Supreme Court of British Columbia has ruled that there will be no retroactive application of the mandatory disclosure provisions of the Income Tax Act that are the subject of a constitutional challenge launched by the Federation of Law Societies of Canada. An application for an injunction suspending application of the provisions to legal professionals pending the outcome of the litigation was granted in late November 2023.  

A disagreement over the scope of the injunction delayed the issuing of the official Order by the Court. On March 13, 2024 Justice Warren ruled in the Federation’s favour, dismissing the government’s argument that in the event the constitutional challenge fails, legal professionals would be required to file disclosures for any reportable transactions occurring while the injunction was in effect. As a result, should the Court rule against the Federation on the merits of the challenge legal professionals would be required to make disclosures only for transactions for which the reporting obligation arises after the date of the final decision. A copy of the injunction Order is available here.

The Federation launched its challenge to amendments to the Income Tax Act expanding mandatory disclosure obligations and creating a new category of notifiable transactions in September 2023.  The amendments came into force at the end of June 2023. The provisions, which require taxpayers and advisors, including legal counsel, to report to the CRA on transactions that may constitute aggressive tax planning, purport to compel legal counsel to disclose confidential and potentially privileged client information to the government and undermine the duty of loyalty owed by members of the legal profession to their clients.

A date has not yet been set for a hearing on the merits of the Federation’s petition. A Backgrounder with additional information on the constitutional challenge is available here.