Taxing Justice
The HST is coming and its ramifications for those who practice law and those who purchase legal services is going to be extreme.
While other industries (notably mutual funds, auto, and real estate) are all engaged in full-court-press mode as they lobby the Ontario government for exemptions, we in the legal services field have remained disturbingly complacent. The problem is simple to define. Starting in July 2010 when Ontario’s GST and PST are replaced by the new Harmonized Sales Tax, virtually everything, including legal bills, will be subject to the new 13% HST. For those of you who are blessed with leaving the billing headaches to someone else in your firm, clients currently pay only the 5% GST — the 8% Provincial Sales Tax does not apply to legal services. To put it simply, legal bills are going up 8% across the board in every area of law purely to cover the tax consequences.
The implications of this tax grab are dire and far-reaching. Access to Justice is directly threatened by this substantal jump in the cost of legal services. Our courts are already struggling with the costs and burdens associated with an increasing number of self-represented litigants who have been driven to stand alone in court by the crushing burden of high legal fees and expensive court proceedings. The HST will have a direct negative impact on the capacity of individuals to have their cases heard in our Province’s courtrooms. The consequences for civil court cases, spousal support claims and child custody issues are serious indeed, but the devastating impact of this tax will be felt most acutely in my area of practice – criminal law.
The typical defendant in a criminal case already struggles to meet what, by any other legal specialty, would be considered modest legal fees. They grimace to learn that the 5% GST applies to their bills and many will find that the 8% addition imposed by the impending HST is the proverbial straw upon the camel’s back. The HST will force an increasing number of defendants to turn to Legal Aid for assistance — a program who’s utter inadequacy and imminent demise has been well publicized. The only remaining alternative is to stand up in court facing criminal charges alone and unrepresented.
Lest one believe that lawyers themselves will be in a position to fully download the cost of the HST to their clients, I suggest looking at your 2010 Law Society dues and insurance premiums. Both are increasing in part to account for the increased tax burden levied against these programs. In fact, Legal Aid’s own budget will be hit hard as they too must cover the 8% increase creatd by the HST on all the files they currently support.
So, while lobbyists put the spit shine on their submissions to government as to why a new car, new home, or mutual fund, ought not to be subject to additional taxation, how is it that we lawyers appear to be entirely silent on a direct attack against the public’s ability to access the jusice system in which we toil? Time is running out. The tax man cometh.
Edward:
Legal bills have been subject to both PST and GST in BC for some time now.
The late Dugald Christie Esq. challenged the levy of PST on legal accounts. Wikipedia states as follows:
Christie is most noteworthy for a 2005 court challenge of a British Columbia law that extended provincial sales tax to legal services. Christie argued that the law unjustly infringed on the constitutionally-protected rights of low income people to access the justice system. He met with partial success at the Court of Appeal,[2] but a further appeal at the Supreme Court of Canada overturned the lower court’s decision on May 25, 2007.[3][1]
The only ‘improvement’ of bringing in the HST would be that a law firm would only need to submit one (federal) remittance rather than two (federal and provincial) as the case here in BC.
But the arguments against the imposition of tax on legal accounts have fallen on deaf ears, at least in the BC experience.
Regards,
Dave Bilinsky
daveb@thoughtfullaw.com
The cite to the SCC case is British Columbia (Attorney General) v. Christie, 2007 SCC 21 for those who’d like to read the court at less than its finest hour. It’s a decision of full bench delivered by “The Court”.
I am familiar with Mr. Christie’s noble fight against the PST in B.C. Of course, here in Ontario where the PST has never applied to legal fees, the HST could have very serious negative consequences as I noted in my column.
I wonder why a new tax is always referred to as a “tax grab”, rather than just as a source of revenue for a government with a projected deficit in the current year of about $25 billion. One can certainly argue for exemptions from a tax on social grounds such as access to justice, but “grab” suggests an imposition based on greed rather than fiscal need.
Despite that deficit, Ontario’s criminal lawyers are boycotting serious cases because the legal aid fees are not high enough. They have a strong case for a raise – and the government has put some more funds into it, considered insufficient by the lawyers – but without more taxes on something, where is the extra supposed to come from?
I add my voice of support to Mr. Prutschi’s position, and call upon our Law Society and Bar Associations to actively oppose this tax measure – it will make legal services even more unaffordable for the average Ontarian. As I said at my blog, its time for Ontario’s government to walk the access to justice walk.
The Ontario Bar Association has been active in lobbying the provincial government on this issue. http://www.oba.org/En/publicaffairs_en/Submissions/Submissions.aspx
It is important for all of us to also contact our MPPs to let them know what we think. Go to http://www.ontla.on.ca for contact info.
John G.,
The reason I referred to the imposition of the HST in this case as a “tax grab” is because of the way this new measure is being sold to the Ontario public. Both our Provincial and Federal politicians have been insisting to anyone who will listen that the conversion from GST+PST to HST is “tax neutral” at worst and is more likely to reduce the tax burden of the average citizen.
I believe in the case of previously un-taxed services such as legal fees, there is a compelling argument to dispel this fiction. The HST must, by definition, dramatically increase the cost of accessing legal services in this Province. It is therefore disingenuous to market it is anything but what it is — a new tax designed to generate revenue.
Your comment also made a connection between new taxes and the funding of vital access to justice initiatives such as legal aid. My position might well be very different if we heard that the new revenue being collected off of HST on legal fees was to be invested in enhancing legal aid rates for those who currently cannot adequately obtain representation. I can assure you that no such promise has been forthcoming.
For those interested, in my riding of Thornhill, Conservative MPP Peter Shurman will be hosting a townhall meeting to discuss the implications of the HST at the Garnett A. Williams Community Centre on Thursday November 12 at 7:00pm.
Well, even if it is a new tax, which I don’t dispute, I don’t think it can be characterized as a “grab”, which suggests illegitimacy and greed, when the province faces an enormous deficit.
I doubt that Mr Shurman will mention the business interests that so pressingly want the harmonized tax because it allows them to get input credits for all of the sale tax they pay and simplifies their accounting hugely. Retailers will get the simplification too, but will face some unhappy customers if they sell things that have not been subject to both taxes before.
The HST is a joke.
Each Ontario citizen is being given $300 regardless of where they live in Ontario.
But citizens in Northern Ontario already pay higher prices for natural gas and gasoline, so they will pay more HST than those living in southern or eastern Ontario.
Northern Ontario residences also use more natural gas as it’s colder longer, so they will pay much more HST.
The government claims the tax will bring in 2 to 3 billion dollars.
But they are giving business a 2 to 3 billion tax cut.
Plus personal income tax is being cut for many citizens.
Plus the GST rebate from the federal government to lower income citizens is being matched by the province.
Therefore, despite higher taxes on more products the government will lose money at the end of the day, if you believe the facts and figures the government cites.
I echo John’s skepticism about this. I am unconvinced that the effect on access to justice can be precisely measured in percentage points. Nor do I believe, if access to justice is the real goal, that chief among the culprits should be tax policy, rather than – to choose just two prominent examples – the number of lawyers who choose to practise in rural areas, or the funding of legal aid.
Applying the same logic as those who object to imposing HST on legal services, presumably the reduction of the GST to 5% should have measurably increased access to justice, yet I don’t seem to recall anyone applauding the Harper government for it. And reducing personal income taxes increases disposable income, which also increases the amount of money people can spend on legal services, thereby, one would assume, increasing access to justice. And so on.
I don’t question the sincerity of the objections to imposing HST on legal services, but slogans such as “taxing justice” really do no justice to the issue, so to speak. The effects of changes to consumption taxes need to be looked at in a broader context, both that of other tax changes and that of government policy generally.
I told you the government will lose money on the HST.
10 simple HST myths
http://www.theglobeandmail.com/blogs/andrew-steele/10-simple-hst-myths/article1377589/
1) “The HST is a tax grab.”
The CD Howe Institute found the B.C. and Ontario HST’s likely revenue neutral due to the generous rebates for new homes and other sectors. The study is from last summer and recently announced relief on low value purchases under $4 in Ontario makes this even more obvious.
Reinforcing that finding, this week’s report from the Roger Martin task force on the economy says that “increased revenue from the harmonized sales tax is matched by reductions in corporate and personal taxes and by tax credits. The effect is revenue loss.”
The HST is not a tax grab. The Ontario government will actually lose revenue. That accusation is demonstrably false.