Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



HST Place of Supply Rules for Lawyers and Those Who Provide Litigation Services

The HST place of supply rules include a specific rules for "services rendered in connection with litigation". This rule applies to lawyers, process servers, transcription service providers, those who provide expert opinions in connection with litigation, etc.

Rule #1: The general rules for services (discussed in yesterday's posting on www.tradelawyersblog.com and www.canadalawblog.com) will not apply to a supply of a service rendered in connection with criminal, civil or administrative litigation in a province (other than a service rendered before the commencement of such litigation).

Rule #2: The general rules for services will apply to services rendered before the commencement of litigation. In other words, if there is an initiating document (such as a statement of claim) Rule 1 applies. If litigation has not started, the general rules apply.

Rule #3: If litigation has commenced, A supply of a service rendered in connection with criminal, civil or administrative litigation in a particular province will be regarded as being made in that particular province. In other words, if the litigation is in the Ontario Superior Court of Justice and you have a court file number assigned, HST at the rate of 13% applies.

Department of Finance Example A: An individual from Brandon, Manitoba receives a speeding ticket in Kenora, Ontario. The individual hires a lawyer from Kenora to contest the ticket. The supply of the service will be regarded as having been made in Ontario because it is rendered in connection with litigation in Ontario. Accordingly, the lawyer will charge HST at a rate of 13 per cent (a 5 per cent federal component and an 8 per cent Ontario component).

Department of Finance Example B: An individual from Cold Lake, Alberta is injured during a fishing trip in Newfoundland. After returning to Alberta, the individual phones a lawyer to determine whether the individual has a cause of action against the Newfoundland charter company that organized the trip. The lawyer advises the individual that he does have a cause of action and the lawyer is advised to file a statement of claim against the charter company. The statement of claim is filed in Newfoundland. The lawyer will charge HST at a rate of 13 per cent (a 5 per cent federal component and an 8 per cent Newfoundland component) on the services supplied after the filing of the statement of claim, however the services supplied before the filing of the statement of claim will be subject to the general rules for services.

The HST place of supply rules do not currently distinguish between federal court litigation and provincial court litigation. As a result, it is not clear whether filing a Tax Court of Canada case in Alberta will save the litigants HST.

It is also not clear whether all cases filed with the Canadian International Trade Tribunal, which is located in Ottawa, will be subject to Ontario HST at 13% even if the affected litigant is located in Alberta. The same confusion will hold true for many other administrative tribunals with all the powers of a superior court of record, such as the CRTC, the Competition Bureau, to name a few. There are a number of federal statutes that create administrative tribunals and a number of federal statutes establish appeal rights only to that federal tribunal that happens to be located in the nation's capital, Ottawa, which is located in the HST Zone. it will be interesting to watch whether access to justice issues are raised by persons (such as individuals) who cannot recover HST costs.

Another question is whether an arbitration is "litigation" under the place of supply rules and, therefore, subject to the specific place of supply rule discussed above that bases the application of HST on the place of the filing. If the Canada Revenue Agency takes the position that an arbitration is caught by the rules, arbitration centres in the HST Zone may not be popular with Canadian parties. Also, business law lawyers and in-house counsel may have to reconsider contractually stipulating that Ontario or British Columbia as the place of arbitration in contracts.

Lawyers should consider whether their clients can save HST based on the place of filing and should start asking the questions as part of their litigation strategy now --- given that litigation filed today will likely continue after HST implementation.

Lawyers and service providers should also recognize that the place of supply rule for pre-filing services is different than post-filing litigation services. Therefore, one file might involve a change in the HST rate. When this happens, it is best to open a new file at the time of the filing of the initiating document.

Canada Revenue Agency Example 97: A business located in British Columbia retains the services of a law firm for guidance regarding potential civil litigation against a customer that is situated in Ontario. It is the normal course of business of the law firm to obtain a business address of its clients. In this case, the business address of the client is in British Columbia. After having received guidance from the law firm, the business decides to proceed with the action and commences civil litigation by filing a statement of claim in Ontario. The business retains the same law firm to provide services in connection with the litigation.

The supply of the services by the law firm prior to the commencement of the civil litigation is considered to be made in the province of British Columbia based on the general place of supply rule for services ... The supplier has obtained the business address of the recipient that is in the province of British Columbia. The subsequent supply of litigation services by the law firm are considered to be made in Ontario, the province in which the civil litigation is commenced.

Cyndee's Note: Lawyers may need to add to retainer letters language about the place of (or apply HST) and clients may want to save the HST or a portion of it and may blame the lawyer (especially if they lose the case) for the added cost if they cannot claim full ITCs.

Rule #4: If a supply of services in respect of litigation is supplied to a non-resident of Canada, the zero-rating provisions may apply to both the GST and HST component. The HST place of supply rules do not override the zero-rating provisions for exported services and professional services.

We would be pleased to consult if you have questions. Call Cyndee Todgham Cherniak at 416-307-4168.

Harmonized Sales Tax (“HST") will become a reality in Ontario and British Columbia on July 1, 2010. Notwithstanding, some businesses will be required to start collecting HST on May 1, 2010.

Businesses in the HST Zone (HST Zone = Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland/Labrador) will have to use the newly released place of supply rules, some of which are different than the existing place of supply rules for Nova Scotia, New Brunswick and Newfoundland/Labrador. The applicable HST rates are

  • Ontario = 13% (5% GST and 8% provincial HST component)
  • British Columbia =12% (5% GST and 7% provincial HST component)
  • Nova Scotia = 13% (5% GST and 8% provincial HST component)
  • New Brunswick = 13% (5% GST and 8% provincial HST component)
  • Newfoundland/Labrador = 13% (5% GST and 8% provincial HST component)

In addition, some lawyers and law firms outside the HST Zone will also be required to charge collect and remit HST in accordance with the place of supply rules when the place of supply is within the HST Zone.

On February 25, 2010, Canada's Department of Finance released its proposed harmonized sales tax (HST) place of supply rules (See http://www.fin.gc.ca/n10/data/10-014_1-eng.asp#_Toc252889005) which will be used to determine whether a supplier must charge, collect and remit HST in connection with a supply made in Canada and whether a recipient must pay HST in connection with an acquisition or importation and at what rate.

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