The Goods and Services Tax (GST) is a federal tax currently set at 5% on all goods and services, subject to certain exceptions.
Alberta does not have a provincial sales tax (PST), so unless lawyers are earning fees in other jurisdictions (where we assume they are complying with legal profession legislation and harmonized tax rules), Alberta lawyers do not have to worry about PST or harmonized sales tax (HST).
GST is a complicated and technical subject. This Module contains a general overview for learning purposes. We urge lawyers with questions about the applicability of GST in specific situations to review The Excise Tax Act, review the materials on the Canada Revenue Agency website or seek professional advice.
In Canada, you must register for a GST account if
- you provide taxable supplies in Canada (i.e., you supply property or services that are made in the course of a commercial activity and are subject to the GST/HST (including zero-rated supplies)) and
- you are not a small supplier (i.e., you do not exceed $30,000 in four consecutive quarters).
As a general rule, you must register for GST on or before the time when your total taxable revenue (before expenses) from all your businesses exceeds $30,000 in a 12 month period. You must register for GST using the same Business Number you have for the other registrations as discussed in the Taxation and Employee Deductions Module.
If you exceed the threshold amount in one calendar quarter, you are considered to be an effective GST registrant from the day you make the supply that causes you to exceed the threshold. You also must collect GST on that supply. You have 29 days from this day to apply for GST registration.
Note that if your taxable revenue before expenses exceeds the small supplier limit of $30,000 in one quarter, you cease to be a small supplier on the supply that made you exceed $30,000. You start charging the GST on the supply that made you exceed $30,000 and you must register within 29 days from the day you cease to be a small supplier.
Example 1: Assume in the calendar quarter July to September you have charged for legal services in the amount of $28,000, and then on September 29 you send out a further bill that includes a fee for legal services in the amount of $5,000. You would charge GST on the whole of that $5,000 fee. You would have 29 days from the day you sent that bill to actually register with GST (in other words, you are an effective registrant from September 29 and must register on or before October 27).
If you do not exceed the threshold amount in one quarter, but you do so over four consecutive quarters, you will be considered to be a small supplier for the four quarters and one month following those quarters. You are considered to be an effective registrant on the first day you make a supply of services after you cease being considered to be a small supplier. It is then that you begin to charge GST. You will have a further 29 days from the day you are deemed to be an effective registrant to register for GST.
Example 2: Assume you open your practice on July 1. In the year from July to the following June, you have charged for legal services in the amount of $28,000. Then on June 29, you send out a further bill that includes a fee for legal services in the amount of $5,000. You do not charge GST on that $5,000 fee. You would have a further month from the end of the four consecutive quarters to begin charging GST (i.e., during the month of the following July, you do not charge GST either). You would begin to charge GST on all supplies of legal services beginning August 1, and you have 29 days from the day you make your first supply after August 1 to actually register with GST (in other words, assuming you supply legal services on August 1, you are an effective registrant from August 1 and must in fact register on or before August 29).
Sole Practitioners and Professional Corporations
If you are a sole practitioner or you practice through a professional corporation, you or your corporation is the entity that must register once the threshold is passed. If you are a partner in a firm, you do not register individually as the partnership is the entity considered to be carrying on the commercial activity for GST purposes and so must register. For purposes of calculating the $30,000 small supplier threshold for partnerships, the total taxable supply of legal services provided by the entire partnership is used.
If you are not registered for GST, you may not charge GST to your clients, nor can you claim the GST input tax credit (ITC) paid/payable for goods and services on your purchases and operating expenses related to your practice. If you voluntarily register, even though you are not yet legally required to do so (because you are still a small supplier), you do have to charge, collect and remit GST and you may claim input tax credits. You would be required to file GST returns on a regular basis.
HST (Harmonized Sales Tax) may impact lawyers in Alberta if you travel on business to another province, for example. You should speak to your accountant or tax advisor to obtain advice with respect to these issues.