9 August 2000 GST/HST Interpretation 8400 - Lawyer's Disbursements - Expert Witness

Dear Sir:

Thank you for your letter of April 30, 1999 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to expert witness/report fees.

Background

1. Section 53.03 of the Ontario Rules of Practice states that a report must be obtained from expert witnesses and served on the other side to enable the expert witnesses to give evidence at trial. The witness report is required in order to enable the expert to testify in court; and

2. Experts are retained for the purpose of giving evidence at the trial of the client's action. Before the expert is retained, the client must put your law firm in funds to pay the cost of the expert's anticipated report.

Interpretation Requested

1. Whether the expert reports/witness fees are incurred as agent for the client?

In your view, the disbursement for the expert attendance is incurred as agent for the client. The expert is compensated for the testimony at trial, not for the report.

It is your view that your law firm has no liability in relation to the expert's report because it has already been prepaid by the client even though the expert's fee account is sent to your law firm. Your law firm correlates the medical records disbursement in example No.1 of policy P-182 to expert/witness supplies.

With respect to the use of the expert evidence, you contend that the client has a use for it. It is your view that the law firm does not put the expert on the stand to effectively perform the service of providing professional legal advice but rather to directly support the client's case. The law firm at that point, you have indicated, has no direct input to the witness' evidence.

2. Whether GST/HST is required to be charged on the expert reports/witness fees when the expert has not billed GST/HST?

You indicate that expert witnesses are usually not GST/HST registrants and do not bill the law firm for GST/HST and that the rules of The Law Society Of Upper Canada do not permit a solicitor to pass on to his clients charges which the solicitor has not actually incurred. It is your view that the law firm should not be billing its clientele for GST/HST when the law firm has not been billed for GST/HST by the expert.

Interpretation Given

1. Our position regarding the expert report/testimony fees described in your letter is, as indicated in policy P-209 Lawyer Disbursements, that they would not be incurred by the law firm as agent for the client.

The supply for which the fees are incurred is an input to the supply of the legal services made by the law firm to the client. The law firm is clearly using the expert report/testimony to best support the client's case, in the course of supplying legal services to the client. For instance, as indicated in your letter, the law firm puts the witness in a position to give evidence, qualifies the witness as an expert and asks questions of the expert designed to express his or her opinion, all in direct support of the client's case.

The expert report/testimony is of little use to the client on its own. Rather, the client is interested in the results that can be achieved with the use by the law firm of the expert report/testimony in the course of rendering its services to the client.

With respect to the issue of liability, for GST/HST purposes, we would consider the law firm to be liable to the expert for the fees relating to the report /testimony, notwithstanding that funds may have been advanced by the client to the law firm. It is the law firm that the expert would be looking to for payment and that would be liable to pay the GST/HST payable, if any, on the supply made by the expert.

The application of GST/HST to a particular disbursement will not be affected by the manner in which the lawyer receives reimbursement. In other words, whether the particular disbursement is paid directly from a trust account, with a subsequent bill to the client, will not affect how the disbursement is treated for GST/HST purposes. As indicated in policy P-209, the classification of a disbursement is based on the application of the principles of agency law.

We note that to the extent that it is the recipient of the supply made by the expert, the law firm would be entitled to claim an input tax credit in respect of any GST/HST payable in respect of that supply, provided all relevant legislative conditions are satisfied.

2. As previously explained, the expert report/testimony fees are not incurred as agent by the law firm, but an input to the supply of legal services and therefore form part of the consideration payable by the client for the legal services (whether or not the amounts are shown separately in the billing to the client). To the extent that the legal services are taxable (other than zero-rated) supplies the law firm, as a GST/HST registrant, would consequently be required under subsection 221(1) of the Excise Tax Act to collect tax on the value of the consideration for those services. This is regardless of whether GST/HST was charged by the expert on its supply to the law firm.

The harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Donato Licursi
Services and Intangible Property Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate