Lawyer’s Billings – How Much GST/HST to Charge? (Hint: it’s not necessarily 13%)

Lawyer’s Billings – How Much GST/HST to Charge? (Hint: it’s not necessarily 13%)

This article was adapted from the author’s Ontario Bar Association presentation for the Toronto Business Lawyers Association LinkedIn page.

Like any other business performing services in Canada (with sales more than $30,000 in the prior calendar year), lawyers are required to register for and collect the correct amount of Goods and Services Tax/Harmonized Sales Tax (“GST/HST”). Lawyers are in turn eligible to claim input tax credits (“ITCs”) on GST/HST paid on their expenses. This post focuses on the requirements for collecting the federal GST/HST, but note that Quebec Sales Tax and British Columbia provincial sales tax apply in certain circumstances.

General Rules for GST/HST Rate

The issue is that Canada is a patchwork of tax rates due to varying rates of the provincial component of the GST/HST, i.e., the HST. For instance, while the GST rate is 5% across Canada, the combined GST/HST rate is 13% in Ontario and 15% in Nova Scotia. Alberta has no HST, so only the 5% GST applies. Which province a supply is deemed to be “made in” under the GST/HST “place of supply” rules determines the applicable rate.

In general, the place of supply rules for services is based on the home or business address of the client that the lawyer obtains the course of its business. Thus, a supply is deemed to be made in Ontario (and subject to GST/HST at 13%) if the client’s home or business address is in Ontario, even if the lawyer is based elsewhere (there are additional rules if no address is obtained, but this generally would not be relevant for lawyers due to “know your client” requirements). Practically, there is less risk if a lawyer charges too much GST/HST (especially if the client can claim ITCs). It is more of a concern if a lawyer under-collects the applicable tax. For example, a lawyer in low-rate province like Alberta may inadvertently only charge the 5% GST applicable in Alberta when billing a client located in Ontario.

So far so good. But the place of supply can get complicated when multiple addresses are obtained for the same client or if the lawyer is asked to provide services to related entities in other locations. Additional place of supply rules may come into play which are require determining the address to which a particular legal service is “most closely connected.” In the case of multiple entities, the rules are generally based on who is the actual client is (the “recipient” for GST/HST purposes is the person liable under the agreement to pay for the legal services).


While legal services are generally subject to GST/HST, this may not be the case with disbursements. If a disbursement is incurred as agent for the client, the lawyer simply passes the gross amount on to the client without adding GST/HST and does not claim ITCs on any tax paid to the third party supplier of the disbursement. On the other hand, if a disbursement is an input into legal services, the law firm would claim ITCs on any tax paid to acquire the disbursement, include the net-of-tax amount in its fee for legal services, and charge the applicable rate of tax (discusses above) on the total consideration.

This is particularly relevant for disbursements which are not subject to GST/HST to begin with, such as exempt filing and registration fees and zero-rated courier charges: if they are incurred as agent, the non-taxable status “flows through” to the client. On the other hand, if a non-taxable disbursement is incurred as an input, it effectively gets added to the tax base for taxable legal services. This creates a true tax cost to clients who are unable able to claim ITCs, such as non-registrants (i.e., most individuals), financial institutions and others providing exempt supplies. It is sometimes desirable, then, to acquire disbursements as agent.

One challenge is establishing the existence of an agency relationship in respect of the particular disbursements, as illustrated by the Federal Court of Appeal’s decision in Merchant Law Group 2010 FCA 206. A law firm acquired various supplies from third-party suppliers in the course of providing legal services to its clients. It treated the cost of some of the supplies as disbursements that it incurred as agent of its clients, and it therefore did not charge GST/HST. The CRA assessed the law firm for failing to collect GST/HST. The Tax Court of Canada allowed the law firm’s appeal on the basis of the general presumption that lawyers act as agent of their clients. However, the Federal Court of Appeal held that this was not sufficient. Instead, it focused on whether the law firm, as the putative agent of its clients, had the capacity to affect a client’s legal position and, in particular, whether the clients were “bound by the contracts with third-party suppliers and were, therefore, liable for payment under the contracts and also exposed to any risk as a party to the contracts.” The FCA reversed the TCC’s decision on the basis that the taxpayer failed to adduce any evidence showing that its clients were bound to the third-party suppliers.

Non-Resident Clients

Certain supplies made to non-residents are “zero-rated.” Zero-rated means that the supply is taxable at 0%, so no tax is charged to the non-resident. This is often important from a non-resident’s perspective as they may not be GST-registrant and unable to claim ITCs. Zero-rated supplies are not exempt, however, which means that the supplier is eligible for ITCs on related inputs.

Section 7, Part V of Schedule VI is the general provision which zero-rates most services provided to non-residents, subject to exclusions. The exclusions of note include services rendered to an individual while present in Canada, services in relation to real property in Canada, and services in relation to tangible property in Canada. Advisory, professional or consulting service are excluded from section 7, as such services are instead zero-rated by section 23, but excluding services rendered to an individual in connection with criminal, civil or administrative litigation in Canada, other than a service rendered before the commencement of such litigation. Similar to section 7, section 23 also excludes advisory, professional or consulting services in relation to real property or tangible property in Canada.

A number of issues arise with respect to applying the zero-rating rules. As a practical matter, a supplier who zero-rates services on the basis that the recipient is non-resident should document the recipient’s residence status. An important issue that can arise is determining if services are “in relation to” real property or tangible property in Canada and thereby excluded from zero-rating. In CRA’s view, services aimed at effecting or dealing with the transfer of ownership of, claims on or rights to the property, or determining title to the property, will generally be regarded as “in respect of” the property. This could include, for example, acting on a real estate closing. It is unlikely to include providing an opinion regarding whether a particular insurance risk is covered in respect of Canadian property.

The exclusion from zero-rating in para. 23(a) applies where advisory, professional or consulting services connected to litigation are “rendered” to an individual. This may be the case, for example, even if the person retaining the services (and, thus, the person to whom services are “supplied”) is a non-resident corporation. The exclusion also necessitates determining what constitutes litigation-connected services (i.e., legal services, mediation, expert reports) and when litigation is considered to commence.

Simon Thang, LL.B, LL.M (Taxation) is Toronto tax lawyer practising exclusively in the areas of Canadian sales tax (GST/HST, PST), and customs and trade. He is the principal of Thang Tax Law.