Executive Summary: Key Legal and Evidentiary Issues

• The Minister of National Revenue applied under section 231.7 of the Income Tax Act for an order compelling KPMG to produce documents demanded in an April 25, 2024 Requirement for Information.
• At issue was whether solicitor-client or other privilege — asserted by KPMG's clients rather than by KPMG itself — shielded the 924 documents listed in a privilege log from disclosure.
• KPMG took no position on the validity of the privilege claims, maintaining that the privileges belonged to its clients and could not be waived by the firm.
• Established law places the burden on the party asserting privilege to prove, on affidavit evidence, that disclosure would reveal privileged legal advice.
• Because the privilege log lacked sufficient particulars and no evidence explained how the third-party (accountant) communications fell within privilege, the claims were not made out.
• No person or entity came forward within the 30 days allowed under an earlier interim order to assert privilege, leaving the Court to decide the application on an unchanged record.

Facts of the case

This proceeding arose from the Canada Revenue Agency's [CRA] efforts to obtain documents held by KPMG Canada LLP [KPMG] in connection with tax audits. In March 2022, the CRA began auditing a group of related taxpayers — five holding companies (ASB, NSB, CEB, SDH, and SDS Holdings Limited), five individuals (Aaron Bleeman, Nathan Bleeman, Eli Bleeman, Shifra Hofstedter, and Deena Smursz), and two further entities, Bleeman Holdings Limited and Asden Holdings Inc (collectively, the Taxpayers) — for their 2019 and 2020 taxation years. The audits aimed to verify whether the Taxpayers had met their obligations under the Income Tax Act [ITA] and properly reported their worldwide income. On April 25, 2024, the CRA issued KPMG a Requirement for Information [RFI] under subsection 231.2(1) of the ITA, demanding documents and information relating to the valuation, tax planning, and professional services KPMG had provided to the Taxpayers, or anyone acting on their behalf, between January 1, 2016 and December 31, 2020. KPMG was given 30 days to comply and sought extensions from the CRA and the Department of Justice [DOJ], but did not produce the material. Instead, it advised that a third party had asserted solicitor-client or other privilege over every responsive document. On February 14, 2025, KPMG delivered a privilege log to the DOJ identifying 924 documents of unknown length or complexity. Five of the corporate taxpayers later released 90 of those documents to the CRA without asserting privilege (the Disclosed Material), and the CRA stopped seeking those items from KPMG.

Statutory provisions and procedural framework at issue

The application was brought under section 231.7 of the ITA, which allows the Minister to seek a court order compelling compliance with a requirement issued under subsection 231.2(1). Because this was a tax-enforcement application rather than a contractual dispute, no policy terms or contractual clauses were in play; the governing terms were statutory and procedural. Central to the matter was the doctrine of solicitor-client privilege. KPMG did not claim privilege for itself. It maintained that any privilege belonged to its clients, that it could not unilaterally waive privilege on their behalf, and that it would abide by whatever the Court decided; it also offered to hand the documents to the Court in a sealed envelope so their confidentiality could be preserved during any review. The dispute was further shaped by an earlier order — the May 7, 2026 KPMG Interim Order (2026 FC 610) — which had given any person asserting privilege 30 days to seek to be added as a respondent and make submissions, with the option of remaining anonymous, and which provided that the Court could decide the application without further appearances if no one came forward.

The court's reasoning and analysis

Justice Fothergill began from the settled principle that the party asserting privilege bears the burden of proving that disclosing unredacted documents would reveal privileged legal advice. Although a court may receive contested documents in a sealed envelope and review them to test a privilege claim, that power is to be used sparingly and never as a matter of routine; whether a review is appropriate depends on factors such as the volume of documents and the nature of the dispute. A party resisting disclosure must first satisfy the court, through affidavit evidence, that there are prima facie grounds for privilege — and where the communications involve third parties such as accountants, the evidence must explain how each communication falls within the privilege. Measured against these standards, the privilege log fell short: it did not contain enough information or particulars to support the claims, and there was no affidavit evidence connecting the third-party communications to any privilege. The Court also noted that more than 30 days had passed since the Interim Order and that no person or entity had come forward to assert privilege or make submissions. With the record unchanged from when the Interim Order issued, the Court concluded that the parties asserting privilege had not discharged their burden and that this was not a suitable case to divert judicial resources to a sealed-envelope review.

Ruling and outcome

The Court sided with the Minister of National Revenue and ordered KPMG to produce the outstanding Required Material — the specific RFI items and the privilege-log entries identified in the appendices — within 30 days, while confirming that KPMG did not have to produce the 90 documents that had already been disclosed. On the question of costs, however, the Minister did not prevail: the Court accepted that KPMG had acted appropriately toward its clients, the Minister, and the Court as an unwilling participant seeking only to honour its professional duties, and applied the principle that costs are not ordinarily ordered against a respondent in that position. Accordingly, no costs were awarded, and no monetary amount was ordered, granted, or paid to either side; the Minister's success lay in securing the production order itself rather than in any financial recovery.