6.4 Application of GST to Legal Fees
You are required to charge and collect the 5% GST on all legal fees, except for:
- Exempt supplies, which include legal services that are wholly provided outside Canada. (A supply is deemed to be made in Canada if the service is performed in whole or in part in Canada). You are not entitled to claim an input tax credit for any GST paid by you on purchases that relate to an exempt supply.
- Exports of services that are zero-rated. For more information on GST and zero-rated supplies see “Zero-rated supplies—List of GST/HST zero-rated supplies”.
Zero-rated means that the service is taxable, but at a 0% rate. Input tax credits can still be claimed for any GST paid by you on purchases that relate to the making of zero-rated legal services.
Legal services supplied to a client who is non-resident (and, if an individual, who remains outside Canada throughout the time the service is performed), will be zero-rated except if the service is:
• provided by the lawyer as the agent of the non-resident (there are no clear guidelines on when a lawyer is acting as an agent; an advance ruling should be considered if there is any doubt),
• in respect of tangible personal property ordinarily situate or to be delivered in Canada or
• in respect of real property situated in Canada.
- Services rendered to certain governments. For more information see GST/HST and Information for Governments and Diplomats on the CRA website.
Only the provincial governments of Ontario, Nova Scotia, New Brunswick and Newfoundland & Labrador have agreed to pay GST/HST on their taxable purchases. If you provide legal services to any other provincial government or provincial Crown agency that provides you with certification, you do not charge GST on your legal services. CRA will accept certification signed by an authorized official of the provincial government entity certifying that the purchase is made by the provincial government entity with Crown funds. You are responsible to keep this certification for audit purposes. You can claim an input tax credit for any GST paid on purchases you made to supply the legal services.
In summary, you do charge GST on legal services provided to the federal government and municipalities.
If you provide services to representatives of foreign governments—like consular officers and diplomats—you must charge GST.
- Services supplied to some First Nations peoples and bands (who fall within the meaning of section 2 of the Indian Act (Canada)) so long as the band council has not passed its own law imposing an equivalent First Nations Goods and Services Tax. This topic is complex and beyond the purview of the Module. Independent research is required, but for a start see the publication First Nations Goods and Services Tax on the CRA website.
Generally if you are not charging GST for legal services, you will need some sort of documentation from the recipient to support the exemption (i.e., to establish they are indeed non-resident, member of a status Indian band etc.) in case of an audit.
Your accounts must clearly indicate the GST portion of the total amount. The following is one acceptable example of how to show GST on an account for fees only:
No GST is imposed on interest charged on overdue accounts for either fees or disbursements, because interest is a "financial service" and therefore exempt from GST.