Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Placed de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 124907
July 26, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Lawyers' disbursements
Thank you for your XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to lawyers' disbursements.
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
We understand that:
You deal with transactions that involve lawyers' disbursements and have been accounting for the GST/HST in accordance with GST/HST Policy Statement P-209R, Lawyers' Disbursements (P-209R). Generally, P-209R lists common expenses incurred by lawyers as disbursements, and indicates whether those expenses are viewed as incurred as agent of the client, or not incurred as agent of the client, for GST/HST purposes.
You are concerned about a recent Tax Court of Canada decision (i.e., Merchant Law Group v The Queen (the Decision)) which raises questions about the application of GST/HST to lawyers' disbursements.
Ruling Requested
As a result of the Decision, you would like to know if the following expenses are now viewed as incurred as agent of the client:
1. court transcripts;
2. medical reports/opinions;
3. travel expenses (hotel, meals, parking, etc.);
4. telephone charges; and
5. photocopying charges.
Interpretation Given
The Canada Revenue Agency (CRA) does not agree with the Decision and has appealed the matter to the Federal Court of Appeal. Pursuant to paragraph 27 of GST/HST Memoranda 1.4, Excise and GST/HST Rulings and Interpretations Service, a copy of which is enclosed, the CRA will not issue a ruling when the central issue involves a matter that is before the courts.
Since the Decision is being appealed, the CRA's policy on lawyers' disbursements continues to be that expressed in P-209R.
For purposes of P-209R, the phrase "incurred as agent" indicates that the disbursement described is generally incurred in a lawyer's capacity as agent for a particular client. As such, no GST/HST is exigible on the subsequent reimbursement by the client. The phrase "not incurred as agent" indicates that the disbursement described is generally incurred otherwise than in a lawyer's capacity as agent for a particular client. As such, GST/HST is exigible on the subsequent reimbursement by the client (to the extent that GST/HST is exigible on the consideration for the service provided by the lawyer to the client). The CRA's policy in determining whether an agency relationship exists is expressed in GST/HST Policy Statement P-182R, Agency (P-182R).
When an expense is incurred as agent of a client, the disbursement billing is not consideration for a supply made by the lawyer to the client, but rather a reimbursement of a cost incurred by the lawyer as agent of the client. Accordingly, if the lawyer did not incur GST/HST on the expense being billed, it would not include the GST/HST in the disbursement billing for the reimbursement. If the lawyer did incur GST/HST on the expense being billed, it would include the GST/HST in the disbursement billing for the reimbursement.
Conversely, when an expense is not incurred as agent of a client, the disbursement billing is generally consideration for a supply of the legal services made by the lawyer to the client. Accordingly, if the lawyer is making a taxable supply of legal services, the lawyer would charge and account for GST/HST on the disbursement billing.
As stated in P-209R, unless there is strong evidence to the contrary, the following expenses are viewed as not incurred as agent of the client:
• fees for expert reports/attendances (i.e., fees paid to have an expert prepare a report in respect of a particular proceeding or to have the expert attend an examination; the expert may also be required to attend other meetings or to appear as a witness in court);
• fees to obtain court transcripts (i.e., fees paid to obtain a transcript of court proceeding in respect of a particular proceeding);
• telephone charges;
• photocopy charges;
• courier costs;
• costs for travel by the lawyer (or others working on a client's file); and
• postage.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8223. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Russell Vermette, B. Comm., C.A.
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Enc.: GST/HST Memoranda 1.4, Excise and GST/HST Rulings and Interpretations Service
UNCLASSIFIED
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