The Goods and Services Tax, or the GST, is confusing, even to lawyers. If you look at my retainer agreement, it states, “You will be charged GST on all fees and some disbursements.” But exactly when GST is payable remains a mystery to most of my clients.
Rules for the GST are complicated and highly technical. In broad strokes, GST is payable on the supply of most goods and services in Canada. (New Brunswick, Nova Scotia and Newfoundland and Labrador adopted a different form of tax, called HST.)
Merchants are required to collect GST on most sales and pay GST on most purchases they make to operate their businesses. They may then claim a credit to recover the GST they paid in the course of these commercial activities. (Note the qualifiers in the above paragraphs, may and most)
When is GST payable for legal services?
In Ontario, lawyers who have a GST number are required to collect GST on legal services performed. Although the Canada Revenue Agency (CRA) provides GST exemption on legal aid plans, it is not applicable in Ontario.* (Interestingly, Legal Aid Ontario pays GST on all fees and disbursements, regardless of the CRA’s policy described below.)
With respect to disbursements (out-of-pocket expenses), whether GST is exigible (meaning collectible) depends on whether the expenses were incurred as an agent of a client. If the expense in question has been incurred by the lawyer in the capacity as an agent of the client, no GST is exigible. If it has not, the GST is collectible.
According to the CRA, the following expenses are generally not GST-exigible:+
- Government filing fees or registration fees for real estate transactions
- Government application fees (such as building permits, zoning permits)
- Court filing fees incurred to initiate a proceeding
- Government fees to create or maintain a business entity (such as incorporation)
- Writ of Possession Fees (eviction fees)
GST is generally exigible on the following disbursements because they are not incurred as an agent:
- Telephone charges
- Photocopy charges
- Courier costs
- Costs for travel by the lawyer (or others working on a client’s file)
- Postage
- Search fees
- Witness fees
- Fees for transcriptions or recordings
The lists above are by no means exhaustive. Readers should consult a lawyer prior to relying on the contents of this blog.
*See “GST/HST Memoranda Series Chapter 5-3, Legal Aid Services,” Canada Revenue Agency (May 1995), online:www.cra-arc.gc.ca/E/pub/gm/5-3/5-3-e.html
+ see “GST/HST Policy Statement P-209R – Lawyers’ disbursements,” Canada Revenue Agency (July 7, 2004), online: www.cra-arc.gc.ca/E/pub/gl/p-209r/p-209r-e.html
