On March 19, 2013, British Columbia issued revised PST Bulletin 106 "Legal Services", which provides guidance to lawyers about the new provincial sales tax ( BC PST) rules for lawyers and law firms. Under the new BC PST rules for lawyers, legal services are subject to BC PST at a rate of 7%. This does not give much time to get ready and may cause some concern with respect to transactions not completed before April 1st (this may be a busy week for lawyers).
PST Bulletin 106 "Legal Services" is only three pages in length and provides limited guidance. That being said, it raises a few red flags for law firms outside of British Columbia. For example, PST indicates that legal services provided by any law firm with respect to "acting as legal counsel in negotiations, including settling terms of a business purchased in BC", are subject to the new BC PST. This could translate into exposure of lawyers and law firms outside British Columbia who act in a national sale of a business, including assets in British Columbia. There is an audit risk for failure to register for BC PST purposes and failure to collect BC PST with respect to legal fees. By the way, the bundling rules in the Provincial Sales Tax Act (British Columbia) add to the value of the risk because the auditors may try to argue tax is payable on the legal fees for the non-BC components of such a national/multi-provincial transaction.
PST Bulletin 106 "Legal Services" contains a short (but broad) list of legal services provided outside British Columbia that are considered to be subject to BC PST. The list of legal services outside BC that are subject to BC PST includes the following (provided that a specific exemption does not apply):
- legal services that relate to real property situated in BC
- legal services that relate to tangible personal property that is ordinarily situated or brought into BC
- legal services that relate to the ownership, possession or right to use any other property in BC
- legal services that relate to a court or administrative proceeding in BC
- legal services that relate to the incorporation of a company under the Business Corporations Act or Societies Act
- legal services that relate to the registration of an extra-provincial company or society under the Business Corporations Act or Societies Act
- legal services that relate to the interpretation or application of an enactment as defined in the Interpretation Act, or a former or proposed such amendment
- legal services that relate to a contract or covenant (or the contemplation of a contract or a covenant) related to a physical or legal presence, activity or transaction in BC, or the contemplation thereof
- legal services that relate to the interpretation or application of any enactment, or a former or proposed enactment of any jurisdiction, or the analysis or application of any law, if it relates to
- a physical or legal presence in BC
- any activity or transaction in BC
- the contemplation of a presence, activity or transaction in BC
- any other matter that relates to BC
Auditors have wide discretion take the position that they may assess a lawyer/law firm outside British Columbia under administrative policy or statutory provisions. Canadian lawyers and law firms are at risk, as well as U.S. lawyers and law firms and lawyers/law firms outside North America.