Practice Watch: Supreme Court of Canada rules PST payable on legal services
by Barbara Buchanan, Practice Advisor
On May 25, 2007, the Supreme Court of Canada issued its decision in British Columbia (Attorney General) v. Christie, 2007 SCC 21, ruling that lawyers are required to collect and remit provincial sales tax (PST) for legal services in accordance with the Social Service Tax Act.
|Concern for his low-income clients prompted Dugald Christie (1940-2006, seen here at the 2004 AGM) to begin his action in 1999.|
Following the decision, BC’s Ministry of Small Business and Revenue issued a notice through its Consumer Taxation Branch (CTB), stating the ministry is not seeking to recover from low-income persons who did not pay PST during the course of the Christie litigation, in accordance with the ministry’s guidelines. The ministry has yet to determine whether low-income clients qualifying for exemption under those guidelines will be entitled to a refund with interest for PST paid by their lawyers on their behalf. The CTB will issue a further notice when information is available.
CTB’s June 18, 2007 “Notice to Lawyers” advises lawyers to remit with their next Social Service Tax Return form (FIN 400) the PST held in trust during the Christie case. The notice explains how to make the remittance and the entitlement to commission. The due date for the majority of remitters is July 23, 2007.
Lawyers should remit the interest earned on PST held in pooled trust accounts to the Law Foundation in the normal course. Amounts held in separate, interest-bearing trust accounts are governed by s. 62 (5) of the Legal Profession Act.
If you have PST questions, contact the Consumer Taxation Branch at 604 660-4524 in Vancouver, or toll-free at 1-877-388-4440, or email questions to CTBTaxQuestions@gov.bc.ca. You can also direct questions to the Law Society’s practice advisors, Dave Bilinsky at 604 605-5331, firstname.lastname@example.org, or Barbara Buchanan at 604 697-5816, email@example.com. Further information may be posted on the Law Society website at lawsociety.bc.ca.
Gratuitous transfers — document your clients’ intentions
Joint bank and investment accounts are often used for estate planning, financial management and other purposes. Two recent Supreme Court of Canada decisions,Pecore v. Pecore, 2007 SCC 17, and the companion case of Madsen Estate v. Taylor, 2007 SCC 18, demonstrate that lawyers should continue the existing practice of identifying and documenting their clients’ intentions for treatment of joint assets upon the death of one of the joint account holders. A lawyer’s notes may assist in determining whether joint assets should go to the surviving joint account holder or to the deceased’s estate.
In these two cases, the Supreme Court clarified the common law principles of presumption of resulting trust and presumption of advancement regarding adult children and minors.
A presumption of resulting trust arises when one person makes a voluntary transfer into the name of another person, or purchases property in the name of another. The presumption applies to gifts to adult children whether dependent or independent. If the transfer is challenged, the onus is on the transferee to demonstrate that a gift was intended. This is because equity presumes bargains, not gifts.
The presumption of resulting trust is the general rule for gratuitous transfers. However, advancement (i.e., a gift) may arise where the transferee is a minor child. If the presumption of advancement applies, it will fall on the party challenging the transfer to rebut the presumption of gift.
In Madsen Estate, the court applied the presumption of resulting trust to a father’s gratuitous transfer of assets during his lifetime to his adult daughter. The court gave little weight to a financial institution’s account agreements on the issue of entitlement to the joint bank account and investment assets, finding insufficient clarity in the agreements’ survivorship provisions. The judges concluded the daughter failed to rebut the presumption of resulting trust on a balance of probabilities. Accordingly, the court ruled the father had not intended to make a gift to his daughter and that the assets were held for the benefit of his estate.
Pecore involved the status of investment and bank accounts held jointly by a father prior to his death and his adult child. The adult child successfully rebutted the presumption of a resulting trust by presenting testimony from the lawyer who drafted the father’s will that the father had not intended the jointly held assets to form part of his estate. Therefore, the accounts constituted complete and perfect inter vivos gifts from the time the accounts were opened, even though the father retained exclusive control of them while he was alive.
Lawyers practising in the areas of wills, estates, trusts and tax will want to read these two cases for other information relating to the presumptions, taxation, capital gains and probate fees. In addition, lawyers should be mindful of the potential for the common law presumptions to apply to clients’ real property held in joint tenancy.
The Law Society’s Practice Checklists Manual reminds lawyers to obtain information about joint accounts and review property with a lawyer that is intended to pass outside of a will. Document your clients’ intentions.
Broadly worded powers of attorney
Some lawyers receive from their clients broadly drawn powers of attorney, going beyond what one normally thinks of as an attorney’s services. Wealthy clients sometimes ask their lawyers to act as their personal shoppers: buying furniture, vehicles and other large ticket items on their clients’ behalf, and charging for these services. Consider whether providing such services may compromise your client relationships or demean your professional obligations.
For information on the insurance coverage provided under the compulsory policy for attorney services, review “Insurance coverage for lawyers acting as trustees or executors or in other similar fiduciary capacities,” found under “Coverage Inquiries & Rulings” in the Insurance section of the Law Society’s website at lawsociety.bc.ca, or contact the Lawyers Insurance Fund.
Some lawyers have been unpleasantly surprised that their financial institution has put a hold on a trust cheque required for a conveyance. You may wish to contact your financial institution to discuss its policy regarding holds on trust cheques to make sure that you are not put in the unfortunate situation of being short of funds or in breach of an undertaking.
For further information regarding Practice Watch, feel free to contact Barbara Buchanan at 604 697-5816 or firstname.lastname@example.org.