Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



HST Place of Supply Rules for Litigators and Those Who Provide Litigation Services (Revised)

The harmonized sales tax (HST) place of supply rules include a specific rules for "services rendered in connection with litigation". These rules apply to lawyers, process servers, transcription service providers, those who provide expert opinions in connection with litigation, etc.

Section 26 of the Draft Regulations in respect of Place of Supply for Property and Services released on April 30, 2010 sets out the proposed specific place of supply rules for services in relation to litigation:

"A supply of a service rendered in connection with criminal, civil or administrative litigation (other than a service rendered before the commencement of such litigation) that is under the jurisdiction of a court or other tribunal established under the laws of a province, or in the nature of an appeal from a decision of a court or other tribunal established under the laws of a province, is made in that province."

More simply put, the rules are:


Rule #1: The general place of supply rules for services will apply to criminal, civil or administrative litigation services provided prior to the commencement of such litigation.
For example, if a person hires a lawyer to discuss whether the facts warrant litigation, the general rules apply. If a person hires a lawyer to sue an opponent and discussions lead to a settlement before a statement of claim is filed with the Court, the general place of supply rules would apply.
 

Rule #2: The general place of supply rules will apply to services in connection with litigation that is under the jurisdiction of a Court or other Tribunal established under the laws of Canada (rather than the laws of a province).


Rule #3: The general rules for services will not apply to litigation services rendered after the commencement of litigation. If the services are in connection with litigation that is under the jurisdiction of a court in an HST province (Ontario, British Columbia, Nova Scotia, New Brunswick or Newfoundland/Labrador) or is in the nature of an appeal from a decision of a court or other Tribunal established under the laws of an HST province, then HST applies.


If litigation has commenced (e.g., there is an initiating document such as a statement of claim) and Rule 3 applies, a supply of a service rendered in connection with criminal, civil or administrative litigation in an HST province, the supply will be regarded as being made in that HST 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.


Rule #4: If litigation has commenced (e.g., there is an initiating document such as a statement of claim), a supply of a service rendered in connection with criminal, civil or administrative litigation filed with a court under the laws of a non-HST province (e.g., Alberta), the supply will be regarded as being made in that non-HST province. In other words, if the litigation is in Alberta and you have a court file number assigned, HST will not be applicable to the services in connection with the litigation (however GST will be applicable).


Rule #5: 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.
 

An unanswered 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. 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
 

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