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    • Category: Administration and Technology

    gavel crushing AI

    Office of the Privacy Commissioner of Canada launches an investigation into ChatGPT: What does it mean for the Legal Profession?

    ChatGPT (Generative Pre-trained Transformer) is an artificial intelligence language model or deep machine learning model (also known as a “chatbot”) created by OpenAI. It is designed to understand natural language and generate human-like responses. It assists its users by answering their questions, providing information, and engaging in human-like conversation with them on a wide variety of topics.

    Since it’s release in November 2022, ChatGPT is now one of the fastest growing user applications in the world. Over one hundred million users are using ChatGPT to generate code, draft papers, and generate detailed and articulate answers based on their prompts. Some use ChatGPT for legal purposes. Indeed, ChatGPT has the potential to transform the legal profession, from researching complex legal questions to drafting legal documents such as employment contracts and wills — reducing work which used to take hours to seconds.

    In April 2023, the Office of the Privacy Commissioner of Canada announced that it was launching an investigation into ChatGPT:

     

    “AI technology and its effects on privacy is a priority for my Office,” Privacy Commissioner Philippe Dufresne says. “We need to keep up with – and stay ahead of – fast-moving technological advances, and that is one of my key focus areas as Commissioner.”

    The investigation into OpenAI, the operator of ChatGPT, was launched in response to a complaint alleging the collection, use and disclosure of personal information without consent.

    What does the introduction of ChatGPT mean for the legal profession, and what are the risks?

    Benefits and Drawbacks

    ChatGPT is a powerful tool which allows lawyers to experiment with generating legal documents and provide succinct answers for complex inquiries. A significant proportion of lawyers’ work takes the form of writing letters, briefs, pleadings, responses, transactional documents, and so forth. Through its AI-powered technology, ChatGPT can be used to streamline these time-consuming tasks, allow lawyers to quickly digest complex information, and analyze documents quickly by accurately identifying key documents and evidence. By providing these tools, ChatGPT can be beneficial for freeing up more time for lawyers to focus on their cases.

    But are the documents legally sound? Are the answers even correct? In brief, ChatGPT cannot be entirely trusted. While ChatGPT can create quick answers for legal questions and inquiries, ChatGPT cannot be trusted to truly comprehend complex legal concepts or jurisprudence. This serious limitation can lead to inaccurate or incomplete advice which presents a risk for both legal practitioners and to their clients.

    In June 2023, an embarrassed lawyer from New York asked the court not to sanction him after he made arguments based upon multiple entirely imaginary legal precedents based on a conversation with ChatGPT. The case citations generated by ChatGPT which the lawyer wrote into his brief were entirely made up. These examples of fictitious case history stated confidently by ChatGPT are examples of an artificial intelligence “hallucinations.”

    Given this serious risk of inaccurate or entirely imaginary information, lawyers and legal professionals would be strongly cautioned to review and double check the work which ChatGPT produces. The answers and documents which ChatGPT generates will sound confident and human-like, but they are prone to error and may be pure nonsense. With time and more training, it is expected that ChatGPT will provide more comprehensive and accurate answers. But, it is also expected that ChatGPT will generate a lot of drivel.

    Ethical Concerns

    ChatGPT also raises ethical questions arising from using artificial intelligence to resolve client concerns. Under the Rules of Professional Conduct, lawyers have an obligation to provide competent legal services and to abide by ethical considerations including security, client privacy, and privilege through the transmission of data between the firm and ChatGPT.

    Lawyers and legal professionals who dutifully provide ChatGPT with as much facts and context as possible, may be revealing and sharing confidential and privileged information and disseminating it to the servers hosting the ChatGPT model. While communication with these servers typically takes place over the internet using secure connections and protocols, data security and privacy of sensitive information cannot be guaranteed.

    However, a lawyer also has the obligation to provide efficient services. Therefore, there is a question regarding how to balance as to what extent lawyers can utilize ChatGPT to provide efficient legal services. While adopting legal technologies can assist with streamlining tasks and improving performance, it is also critical for lawyers to assess and implement technology responsibly in order to meet ethical obligations and to protect client interests.

    ChatGPT and Access to Justice

    The use of ChatGPT has also raised questions on the use of technology in improving access to justice within the Canadian legal system. ChatGPT may one day be effective in providing general legal information that can assist with directing users towards resources to learn more about their legal claims. ChatGPT’s ability to summarize complex legal topics and generate legal work products could assist numerous Canadians who are otherwise unable to access traditional legal services by providing answers for people to resolve their legal issues.

    However, relying on ChatGPT for legal information poses risks as it may provide outdated or incorrect advice, and lacks the specialized expertise and judgment that a qualified legal professional can offer. The widespread and ready access to ChatGPT presents a risk that users will receive inaccurate answers as well as documents that are not based on a solid legal grounds.

    Future and Conclusion

    The demand for artificial intelligence tools such as ChatGPT is clear. These tools allow users to streamline legal processes, provide greater access to legal information, and may one day be able to provide correct answers to complex legal questions. However, there is a danger that both legal professionals and their clients in using ChatGPT without considering the accuracy and ethical considerations associated with ChatGPT. It is crucial to approach using ChatGPT with caution and to ensure that legal advice provided by both legal professionals and ChatGPT is good and to a professional standard.

    The outcome of the investigation by the Office of the Privacy Commissioner will undoubtedly reveal additional risks and possible mitigations for the use of ChatGPT in the legal profession, but there will likely be more investigations to come.

    ChatGPT highlights the promise of artificial intelligence, and ushers in a new era to assist both lawyers and their clients in accessing, creating, and generating legal information to benefit the legal system.

     

    This blog was co-authored by student-at-law, Abby Leung. It was specifically not co-authored by ChatGPT.

    This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.
    By Fauzan SiddiquiAdministration and Technology, Blog

    A Legal Guide to Cryptocurrency in Canada

    What is cryptocurrency?

    Cryptocurrency is decentralized digital money, based on blockchain technology. It is a form of currency that can be exchanged online for goods and services. However, it is not legal tender in Canada as it operates independently of any central bank, central authority or government.

    The Currency Act defines legal tender as only:

    How does the CRA Approach Cryptocurrency?

    The CRA’s position is that cryptocurrency should be treated as akin to a commodity for the purposes of the Income Tax Act. As a result, crypto transactions are subject to the same rules as barter transactions – transactions where one commodity is exchanged for another. Any income from transactions involving cryptocurrency can be treated as business income/losses or as a capital gain/loss, depending on the taxpayer’s circumstances.

    When is cryptocurrency taxed?

    Canadians typically do not pay any taxes to hold a cryptocurrency but doing any of the following can lead to tax liability:

    • Gifting cryptocurrency
    • Selling cryptocurrency
    • Exchanging or trading cryptocurrency, including converting between cryptocurrencies
    • Converting from cryptocurrency to CAD or another fiat currency
    • Buying goods or services with cryptocurrency

    Do you need to declare your income from cryptocurrency transactions to CRA?

    Yes. Income or gains from trading in digital currencies are subject to tax under the income tax rules. Gains and losses from buying and selling cryptocurrencies must be reported in a taxpayer’s income when filing a tax return. Depending on the extent of the trading activities, the transactions may be characterizable as being on account of income or capital.

    Generally, if an individual is in the business of trading cryptocurrency, or is engaged in an “adventure or concern in the nature of trade” any gains or losses ought to be reported as being on account of income. If an individual is not engaged in the business of trading cryptocurrency, gains or losses can be reported as being on account of capital.

    Business Income:

    The case law provides guidance to CRA auditors who typically use the following factors to categorize cryptocurrency as business income:

    • Volume of trades – the more a taxpayer trades in a given year may indicate an “active” business
    • A product or service is promoted
    • The overall behaviour is managed in a commercially viable way
    • Activities are done “in a business-like manner” (such as acquiring inventory or capital assets or making a business plan)

    The net income will be fully included in income and taxed at the individual’s marginal income tax rate. CRA considers cryptocurrency mining, trading, exchanges, and ATMs to all be cryptocurrency businesses.

    • Adventure or Concern in the Nature of Trade

    The CRA may also consider transactions to be an adventure or concern in the nature of trade, which would also result in a full income inclusion for the taxpayer, even if only a single transaction is undertaken. The relevant factors to consider are:

    • whether the taxpayer dealt with the property in the manner consistent with how a dealer in said property would ordinarily deal with it
    • whether the nature of the property itself precludes the possibility that its sale was a realization of an investment or of a capital nature
    • whether the taxpayer’s intention as deduced is consistent with a trading intention

    Of the above factors, generally, the courts have held that the taxpayer’s intention is the most important and usually is determinative. The result is the same as business income, meaning that the taxpayer will be required to include 100% of the net gain into income.

    • Capital Gains:

    Generally, a transaction will be considered on account of capital based on some of the following factors:

    • The property was purchased to generate recurring income such as rent or dividends
    • Evidence of an intention to hold long term
    • There is an absence of evidence of business intention or behaviour related to the asset

    When characterized as a capital gain, only 50% of the net gain will be included in the taxpayer’s income for the year and will be taxed at the individual’s marginal rate.

    Reporting Ownership of Cryptocurrency to CRA

    Because cryptocurrencies are treated in a similar manner to any other type of asset, Canadians who hold bitcoin or other cryptos with an aggregate cost base greater than $100,000 on exchanges or physical wallets outside of Canada will need to report their holdings on the T1135 – Foreign Income Verification Statement which must be filed each year with the income tax return if applicable. Failure to do so results in a strict liability penalty of up to $2,500 per year, and there is the potential for additional Gross-Negligence Penalties in excess of $10,000 per year to be assessed.

    What if you fail to declare your (taxable) profits?

    Failure to report income from cryptocurrency transactions, or failure to declare cryptocurrency held offshore is illegal in Canada and can result in prosecution for a criminal offence under the Income Tax Act, the imposition of extremely punitive Gross-Negligence Penalties and more. Depending on your circumstances, however, it may be possible to correct the deficiency with CRA by proactively filing a Voluntary Disclosure Application. Late-filing or amending can be considered but will result in penalties, so seeking specific legal advice in advance is preferred.

    For all your tax-related queries please contact Nathaniel Hills via email at nathaniel.hills@devrylaw.ca or call 416-446-5841.

    “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please contact a lawyer. Each case is unique and different and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

    By Fauzan SiddiquiAdministration and Technology, Blog, Tax