As of April 1, 2013 HST no longer applies to legal fees and legal services in BC. In personal injury cases no income tax is payable on lawyer negotiated settlements for pain and suffering compensation with the Insurance Corporation of British Columbia, ICBC, and other insurance companies. The Provincial change back to the PST and GST changes will however keep sales and services taxes on legal fees at a total of 12%, with few exceptions.
According to the Provincial Sales Tax, PST, Bulletin of March 28, 2013, an injury claimant that hires a BC lawyer to represent them in an insurance dispute that relates to a motor vehicle accident in BC must pay the tax on legal services because they relate to a possible BC proceeding. This applies even if the matter is settled out of court.
Claimants and all BC government departments and Crown corporations, including ICBC, that were paying HST on purchases of taxable goods and services will have to pay GST. Businesses that already have a federal business number can use the old business number for the GST, but will still need a new PST number.
The change from the HST back to the PST/GST will not have any substantial impact on what the average personal injury litigant pays for sales and services taxes on legal services. Talk to your lawyer about the specifics of your case.
Posted by Personal Injury Lawyer Mr. Renn A. Holness, B.A. LL.B.
When the lawyer takes deductions it’s charges and then takes 30% of the balance as it’s fees- is there GST and PST on the 30% that they take?
Thanks
Yes, according to the Provincial Sales Tax, PST, Bulletin of March 28, 2013, an injury claimant that hires a BC lawyer to represent them in an insurance dispute that relates to a motor vehicle accident in BC must pay the tax on legal services because they relate to a possible BC proceeding. This applies even if the matter is settled out of court.
May I ask a follow up question?
What if in the middle of legal proceedings, the bc lawyer moved from one law firm to another. The new law firm has an agreement with the old law firm that whatever amount the lawyer gets, a percentage will go to the old law firm.
The case settles. The new law firm bills fees and charges gst and PST. Then old law firm bills new law firm for their portion of the settlement and charges gst and PST.
For the new firm, gst can be claimed back, but not PST. Are the fees then being double taxed on PST?
So long as each law firm only charge PST on their portion of the fee, there should be no double taxation.