Tax on legal services gets even more complicated

In 1992, an NDP government in need of revenue singled out legal services for a special tax. No other professional service was targeted, just legal – services that anchor our society’s ability to conduct business, resolve disputes, and protect and enforce legal rights. The CBA and then-Liberal Opposition opposed the tax, but to no avail.

There has never been a hint of sound tax policy behind the legal services tax – people in government then and now admit it’s simply a matter of revenue. The tax generates more than $110 million annually from people, businesses, and institutions that need legal services. When the B.C. Liberals took the helm, there was some early optimism that indefensible taxes like this one would soon be gone. Five years into their reign – despite an economic upswing and commitment to bring “good business sense” to government – this tax remains.

B.C. lawyers are mired in a mess of red tape and bureaucracy because the Government of B.C. refuses to scrap the tax despite economic arguments and a series of legal challenges. Worse, the government is using taxpayers’ dollars to fight for it all the way to the Supreme Court of Canada. Left in legal limbo, thousands of lawyers and law firms are now dealing with an administrative nightmare.

On July 11, in response to recent court rulings, new “Guidelines” were released by the Ministry of Small Business and Revenue. Every lawyer needs to read them (see www.cba.org/bc). It is important to note that there may be penalties if appropriate funds dating back to December 2005 are not submitted in time (September 15 for monthly remitters).

The time-consuming decision-making process now required for every file and bill is provoking a whole new level of confusion and frustration. First, we must distinguish between solicitor’s and barrister’s work (there’s a whole section on that in the Guidelines). Then we must decide whether and what part of the work is “legal services related to the determination of rights and obligations by courts of law or independent administrative tribunals.” And then we must decide whether our client is “low income” – the definition of which, according to the Ministry, is frozen to the Legal Services Society limits in place on May 8, 2005.

In certain cases we must not charge the tax, in others we must charge it and remit it to government, and in yet others we must charge it and hold it in trust until the SCC decision, sometime in ‘07.

“What we have is a complex administrative problem with a very simple political solution,” said Meg Shaw, CBABC President. “This is a bad tax: it makes no sense on any policy level, no economic sense and it’s hurting access to justice. The Government needs to get rid of this cumbersome, discriminatory tax and let lawyers get out of the business of tax collection for government, and back to the work of law.”

This article was published in the August 2006 issue of BarTalk. © 2006 The Canadian Bar Association. All rights reserved.