IANAL, but there is no law that says anything along the lines of what he claims.
Generally the law in Canada is that the police can do whatever they want so long as it does not "bring the administration of justice into disrepute" or "shock the conscience of Canadians".
For example - a cop posing as a criminal in a jail cell and getting confessions from people is over the line, but listening in on conversations in a jail cell between arrested people is not.
But in a nutshell, prostitution is legal except where it is procured in a public place (s.213 Criminal Code of Canada - note that here COMMUNICATION is illegal so it doesn't much matter if they're naked or not, you're already arrested), who procured a prostitute generally or "lives off the avails of prostitution" (s.212 CCC) or who keeps a "common bawdy house"
The purpose of these laws is generally to (a) protect women from pimps (b) most sex work off the streets and (c) to protect the public from the perceived dangers of brothels in their neighbourhood.
Long story short, you can tell your potential client that it seems that you being naked has nothing to do with it - the law doesn't care at that point, the law has already been broken by the time you communicate, or enter the house, or transfer money. If he's uncomfortable with that then he's outta luck.
Once again, I am not a lawyer - just the information I could dig up.
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