Alaris Equity Partners, 2026 TCC 185: accountants' due-diligence work done as the law firm's agent stays privileged

2026 TCC 185 · Tax Court of Canada

Author: Sas Tullo

This is a procedural ruling in a general anti-avoidance rule appeal, decided on a Crown motion to compel production of fourteen documents that the taxpayer withheld as privileged. The documents were created in 2008 by Ernst & Young, which the taxpayer’s tax counsel had retained directly to help with due diligence under a tight closing deadline. Justice Bocock found ten of the fourteen documents privileged and ordered the other four produced. The ruling matters to anyone who plans a transaction with lawyers and accountants working side by side, because it explains when an accountant’s work takes on the lawyer’s privilege and when it does not.

Facts

The underlying appeals concern whether the general anti-avoidance rule applies to deny the appellant’s carry-forward and use of tax attributes arising from transactions in 2006 and 2008 (para 2). All fourteen disputed documents relate to the 2008 transactions and were created over six weeks in May and June 2008 (para 6).

In early May 2008 the Alaris Group retained Felesky Flynn LLP to give legal tax advice on the 2008 transactions, which required due diligence on historical transactions and consideration of structuring and future tax consequences (paras 7-8). The commercial terms were substantially settled when the firm was retained, and a letter agreement of May 12, 2008 originally required due diligence to be finished by May 31, 2008 (paras 9-10). Felesky Flynn therefore engaged Ernst & Young directly to assist, under an engagement letter of May 14, 2008 between the two firms that was produced in full (paras 11-12). Ernst & Young gathered, compiled, sorted, reviewed, and summarized information about the appellant’s corporate structure and historical tax reporting, and delivered a report to Felesky Flynn dated May 30, 2008, which is disputed document 1 (para 13). The other thirteen documents are emails among the Felesky Flynn lawyers, the Ernst & Young team, Alaris Group officers, a junior associate at Burnet, Duckworth & Palmer LLP, and a lawyer in the Riddell family (paras 14-22). Counsel handed up sealed unredacted copies for the Court’s confidential review, a process the Court accepted as compliant with section 88(d) of the Tax Court of Canada Rules (General Procedure) (paras 23-24).

Issues

The sole question was whether each of the fourteen disputed documents was protected by solicitor-client privilege or litigation privilege, such that the appellant could withhold or redact it on discovery (para 1).

Holding

The motion succeeded in part. Disputed documents 1, 2, 3, 4, 9, 10, 11, 12, 13, and 14 were held privileged and need not be produced; documents 5, 6, 7, and 8 were held not privileged and must be produced in full within 30 days (para 46). Given the mixed result, no costs were assessed, although either party may raise them later if settlement offers were exchanged (para 47).

The court’s reasoning

Bocock J. began from the familiar principles. The party asserting privilege must show that the communication was made for the purpose of giving or receiving professional legal advice, in confidence, and within the scope of ordinary professional employment, citing Solosky v. The Queen, [1980] 1 SCR 821 (paras 25-27). The privilege covers the continuum of communication in which the solicitor tenders advice, but the claimant must do more than baldly assert it (paras 28-29, citing Samson Indian Nation and Band v. Canada and Belgravia Investments Limited v. Canada, 2002 FCT 649).

The difficulty was that none of the documents was created by the solicitors, save arguably parts of documents 9, 10, and 12, and an accountant’s work product is generally not privileged (para 31, citing Redhead Equipment Ltd. v. Canada (AG), 2016 SKCA 115). Two exceptions were engaged: the accountant acting as agent within the solicitor-client relationship, grounded in Descôteaux et al. v. Mierzwinski, [1982] 1 SCR 860 (para 32), and the functional approach from Redhead, applied in Coopers Park Real Estate Development Corporation v. HMK, 2024 TCC 122 and Imperial Tobacco v. HMQ, 2013 TCC 144, under which privilege extends only to communications in furtherance of a function essential to the solicitor-client relationship (para 33). The Court also drew on Minister of National Revenue v. Atlas Tube Canada ULC, 2018 FC 1086, for the proposition that due-diligence documents are not inherently privileged and that the inquiry is into the principal purpose behind each particular document (para 34).

The Court distilled four tests: the accountants had to be the solicitors’ agent, the information had to be solicitor essential, the document had to fall within the communication continuum, or it had to be covered by litigation privilege (para 35). A multiple role as lawyer, investor, or director does not, absent conflict, diminish privilege (para 36). Critically, Ernst & Young “did not act for the Appellant or Alaris Group, in conducting the Due Diligence Activities, but solely and directly for Felesky Flynn” and was contractually an exclusive solicitor agent (para 37). Work that lawyers would customarily do themselves, parcelled out to a capable agent because of time constraints, does not lose its privileged status by that delegation alone, provided the task and work product were privileged in the first instance (para 38).

Applying this, the Ernst & Young report was “clearly privileged”: it was created to supply information and evidential foundations for the legal opinion, no waiver was shown, and its contents were within the customary scope of due-diligence conclusions a law firm renders to a client (para 39). Documents 2, 3, 4, and 11, in which Ernst & Young sought specific information from Alaris for the opinion, were within the protected conduit (para 40). Documents 5, 6, and 8, by contrast, merely described process, availability, and timing for delivery of documents, with “the same effect as a delivery slip, waybill or packing slip”, and so had no informational value to protect (para 41). Document 7 was an isolated 2006 public document sent without specific request or context and was likewise not privileged (para 42). Documents 9 and 10, substantive exchanges between the lead Ernst & Young accountant and the principal Felesky Flynn lawyer, were privileged (para 43). Documents 12, 13, and 14, internal Alaris emails refining the facts in answer to a legal question posed by counsel, with the express caveat that counsel would supply the answer, were within the legal advice continuum (paras 44-45).

Practical implications

The decision confirms that the structure of the retainer matters. Where the law firm, not the client, engages the accountants for a defined task that feeds the legal opinion, the Court will treat the accountants as the solicitors’ agents and extend the privilege to their work product. In my view, the written engagement letter between Felesky Flynn and Ernst & Young, produced in full, was decisive in establishing that exclusive agency, and advisers should document that relationship at the outset rather than rely on inference. The decision also reinforces the warning in Atlas Tube and Redhead that due diligence as such is not privileged: each document is tested on its own function, and the taxpayer bears the burden for each one.

The second lesson is that emails which merely arrange logistics will not be protected because they travel between privileged actors, since there is nothing in them to protect; counsel may concede such documents early rather than litigate them. The Court’s refusal to penalize overlapping roles among client personnel is also helpful for closely held groups. Whether an appeal was taken is not verified here.

For taxpayers planning transactions with both lawyers and accountants involved, the message is to let the lawyers retain the accountants where their work is meant to feed legal advice, and to keep the paper trail showing that is what happened. The GAAR appeals themselves remain to be heard.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

Alaris Equity Partners Inc. v. The King, 2026 TCC 185, reasons for order dated October 28, 2026, Bocock J. (Tax Court of Canada, dockets 2023-1599(IT)G and 2023-2208(IT)G). Reasons on the Tax Court’s site. Also on CanLII.