BC government confirms that BC lawyers should not charge PST to low-income clients
March 14, 2005
In response to Law Society enquiries, the Ministry of Provincial Revenue has confirmed that BC lawyers should exempt low-income clients from payment of the 7% social services tax on bills for legal services and has now issued guidelines in that respect: see the Consumer Taxation Branch website at www.rev.gov.bc.ca/ctb/LegalServices.htm (general information) and www.rev.gov.bc.ca/ctb/LegalServices_FAQ.htm (questions and answers).
Lawyers will recall that Madam Justice Koenigsberg of the BC Supreme Court on February 8, 2005 declared that the Social Services Tax Amendment Act, 1993 is unconstitutional and ultra vires the Province of BC to the extent that it applies to legal services for low-income people since it violates the right of those people to access justice: see Christie v. AG et al 2005 BCSC 122 (available online at www.courts.gov.bc.ca/Jdb-txt/SC/05/01/2005BCSC0122.htm). Madam Justice Koenigsberg defined "low income" for this purpose as the level of income and assets for eligibility under the family duty counsel program of the Legal Services Society.
Although the government is appealing the decision in Christie, it is not seeking a stay and accordingly will comply with the decision pending an outcome of the appeal.
It is also the government's intention, in the event of a successful appeal, to introduce legislation for the consideration of the legislature to provide an exemption from tax for those individuals whose household net income falls at or below the thresholds for the period from February 8, 2005, to the date of the appeal decision. Therefore, the government does not intend to impose a penalty on a lawyer who, during this period, does not collect tax from individuals whose net income falls at or below the thresholds, provided that the lawyer retains proper documentation.
The government, however, states that it does not intend to refund PST collected from low-income people prior to February 8. The government also interprets the Christie decision as providing tax relief on legal services only to low-income individuals who meet the threshold income criteria, but not to corporations.
The Ministry has specified that a lawyer should assess a client's income at the time of rendering a bill, providing the billing is made in the normal course of business under usual terms. The government's position is that a lawyer's client should provide to the lawyer a statutory declaration and documentation of household net income (or alternatively an explanation of why such documentation is not available).
Soon after the decision in Christie, the Ministry of Provincial Revenue posted a notice on its website stating that the 7% provincial social services tax should not be charged on bills for legal services for people whose net income falls below the Legal Services Society eligibility guidelines for its family duty counsel program (as those guidelines existed on February 8). Those guidelines have now been incorporated into the government's sample statutory declaration, which lawyers can use from this point forward: see www.rev.gov.bc.ca/ctb/LegalServices_Statutory_Declaration.pdf .
Since statements made by the Ministry of Attorney General originally appeared to conflict with those of the Ministry of Provincial Revenue, the Law Society sought clarification. The Ministry of Provincial Revenue has now clarified a number of issues, as reflected on its website. Lawyers will wish to review and monitor the Ministry of Provincial Revenue site for updates and direct further questions to the Ministry. If lawyers encounter situations not covered by the Ministry's guidance or that should come to the attention of the Law Society, please contact Dave Bilinsky, Practice Management Advisor, at email@example.com .
Following the Society's most recent discussions with the Ministry on procedural issues, lawyers are advised to open a separate low-income eligibility file in their offices to document material from clients who wish to receive an exemption from the tax.
The file should contain a copy of each client's invoice (with all confidential information redacted out), together with a copy of the client's statutory declaration attesting to his or her low-income status and all required exhibits. In the event of an audit by the Ministry of Provincial Revenue, this file can be produced to the auditors. If the auditors seek further documents in the lawyer's possession, the lawyer should have regard to Chapter 5, Rule 14 of the Professional Conduct Handbook and should contact his or her client to seek instructions on whether the client wishes to make a claim of privilege. If the client is not willing to waive privilege or if the lawyer fails to obtain instructions, the lawyer should claim privilege and place documents in a sealed envelope. It is then for the court to determine whether the documents are privileged. For more information, please contact Michael Lucas, Policy and
If a client's financial eligibility is in question and documentation cannot be obtained to clearly determine the client's financial situation, lawyers are advised to collect the tax and remit it to the province to avoid penalties and interest being imposed. The client should be advised to claim for a PST refund. Lawyers are not advised to hold the PST in trust in these circumstances, as this will not prevent the province from claiming penalties and interest against the lawyer.
The provincial government is taking the position that the appropriate time for determination of eligibility is at the time of rendering the first invoice to the client. While the Ministry of Provincial Revenue has specified that lawyers should base eligibility on a calculation of the client's average monthly household net income, there may be situations in which the client has suffered a change in circumstances (such as a loss of employment). In such situations, the new family net income should be used rather than the average monthly net income.
The government has indicated that lawyers will be held to good faith efforts on what is reasonable in the circumstances.