8 March 2007 GST/HST Interpretation 86030 - Lease agreement entered into prior to March 10, 2004

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.

Dear XXXXX:

Thank you for your letter XXXXX in which you raise concerns XXXXX concerning the application of the Goods and Services Tax (GST) to the legal services supplied by XXXXX (lawyer). XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

We understand the facts as follows:

1. XXXXX, was an (employee) of XXXXX (employer).

2. XXXXX the employer terminated the employee's employment and provided a severance package.

3. The employee then acquired the legal services from a lawyer to assist in acquiring additional amounts of severance from the employer. In addition, the employee sought to have the employer pay legal costs.

4. XXXXX the employer and the employee signed XXXXX (the Agreement).

5. XXXXX the Agreement provides that the employer shall pay to the employee's lawyer XXXXX on account of legal costs incurred in connection with the litigation and settlement of the matter.

6. The employee agreed in the Agreement to indemnify and save the employer harmless to any claims, charges or demands properly exigible which might be made upon it in respect of obligations in connection with this settlement to the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan, or by any duly recognized federal or provincial taxing authorities in respect of income tax and/or payroll deductions previously withheld, including any legal fees and disbursements incurred in the defence of such claims.

7. The employee acknowledged by signing the Agreement that the employee understood its terms and had a reasonable opportunity for independent legal advice with respect to it. The employee further confirmed that this settlement constitutes the entire agreement between the parties, and that the undertakings are the sole consideration for the release.

8. XXXXX the employee's lawyer issued its statement of account to the employee, wherein it required the employee to pay $XXXXX for GST owing on the legal costs paid by the employer. The employee is disputing this claim and believes that the employer is responsible for the outstanding GST.

Decision

XXXXX in accordance with our analysis of the facts and in consideration of your submission, we are confirming XXXXX that XXXXX is the recipient of the supply of the legal service made by XXXXX lawyer and is required to pay the GST owing XXXXX.

Explanation

Subsection 123(1) provides for a definition of "recipient" and includes, in part, the situation where consideration is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration. The definition also refers to a person to whom a supply is made, who shall be read as a reference to the recipient of the supply.

Subsections 165(1) and (2) of the ETA requires every recipient of a taxable supply made in Canada to pay the GST/HST in respect of the supply calculated at either 7% or 15%, as applicable, if the supply was made before July 1, 2006.

Subsection 221(1) requires every person who makes a taxable supply to collect the tax under subsections 165(1) and (2) payable by the recipient in respect of the supply.

Liability for the GST payable on a supply is established under an agreement for that supply. The agreement that establishes XXXXX tax liability is the agreement that XXXXX entered into with XXXXX lawyer. The subsequent Agreement entered into between XXXXX and under which XXXXX agreed to pay an amount XXXXX towards XXXXX legal costs, does not, in law, render the agreement XXXXX entered into with XXXXX lawyer null and void.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8223.

Yours truly,

Daniel Chamaillard
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/03/06 — RITS 86580 — Importations of Vitamin B12 XXXXX and Vitamin B12 XXXXX