Tax Court of Canada


Taxation

INCOME TAX
Motion to exclude lawyers’ testimony was dismissed

Company terminated taxpayer’s employment by sending notice of termination in accordance with employment contract. Parties reached settlement agreement and signed confidentiality clause. Taxpayer included confidential settlement amount on his tax return as retiring allowance. Taxpayer commenced appeal objecting to minister’s assessment confirming imposition of confidential settlement amount as retiring allowance. Taxpayer sought to include testimony of lawyers, who acted for parties during signing of settlement agreement, alleging it was necessary for court to determine true nature of payment made by company to taxpayer. Company brought motion pursuant to s. 65 of Tax Court of Canada Rules for order forbidding lawyers from testifying on existence and terms of settlement agreement, and that if testimony was allowed, hearing be conducted in camera. Motion granted in part. Motion for request for in-camera hearing was granted, but motion to exclude testimony was otherwise dismissed. Discussions between lawyers prior to settlement were not protected by professional secrecy, and lawyers were not precluded from testifying. Taxpayer established two overarching public interests which prevailed over interest in favour settlement negotiations. Overarching public interests were preservation of Canadian tax base and taxpayer’s right to fair trial. Based on contract and circumstances under which settlement agreement was reached, clauses of agreement did not show that parties intended to exclude exceptions to privilege laws. It was implicit at time parties signed agreement that they were aware that terms of agreement could be brought to attention of public authority. Court could not conclude that parties clearly intended to preserve confidentiality in situation when considering exceptions to settlement privileges. Section 151.21 of Code of Civil Procedure could not prevent intended testimony.

Abenaim c. R. (Jul. 24, 2015, T.C.C. [General Procedure], Johanne D’Auray J., File No. 2012-2005(IT)G) 258 A.C.W.S. (3d) 444.

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