Exempt Legal Services

From: Canada Revenue Agency

GST/HST Memorandum 5.3
May 2016

This version replaces the one entitled Legal Aid Services dated May 12, 1995.

This memorandum explains what legal services are and provides information on when a supply of legal services is exempt from the Goods and Services Tax/Harmonized Sales Tax (GST/HST) under the Excise Tax Act.

All legislative references in this publication are to the Excise Tax Act (the Act) unless otherwise specified. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or call GST/HST Rulings at 1-800-959-8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec website at www.revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1-855-666-5166.

GST/HST Rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador; 14% in Prince Edward Island; and 15% in Nova Scotia. The Governments of New Brunswick and Newfoundland and Labrador have proposed to increase the rate of the HST in those provinces from 13% to 15%, effective July 1, 2016. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, see GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province.

Legal services

1. For the purposes of this memorandum, a "legal service" is a service rendered by a lawyer engaged in the practice of law. Legal services could also include services provided by articling students or other students and support staff, to the extent that their services are intended to assist the lawyer in the provision of the lawyer's service and are undertaken under the supervision of the lawyer.

Example 1

An individual acquires legal services from a lawyer to assist with the purchase of a business. Some of the documents regarding the purchase will be reviewed by an articling student who is supervised by the lawyer. The services provided by the lawyer and the articling student are considered legal services.

2. Typically, fees charged by lawyers for legal services may include out-of-pocket expenses incurred by a lawyer in the ordinary course of their practice in addition to fees for professional services. Such expenses or "disbursements" are treated as part of the fees for legal services for purposes of the GST/HST unless the expense was incurred by the lawyer as the client's agent. For more information, refer to GST/HST Policy Statement P-209R, Lawyers' disbursements.

3. Supplies of legal services are generally taxable for GST/HST purposes unless exempt under Schedule V to the Act.

Example 2

An individual is purchasing a house and acquires legal services from a lawyer to assist with the purchase. The supply of legal services by the lawyer to the individual is taxable.

Legal services provided under a legal aid plan

4. Each province and territory has its own legal aid structure whose purpose is to provide certain legal services to persons who could not otherwise afford the services of a lawyer.

5. Under section 1 of Part V of Schedule V, a supply of legal services provided under a legal aid plan administered by or under the authority of a government of a province is exempt when the supply is made by the person responsible for administering the plan. For purposes of this section, the term "province" includes a territory.

6. In this memorandum, the term "legal aid plan administrator" refers to the person responsible for administering a provincial or territorial legal aid plan.

7. Some legal aid plan administrators are part of a provincial or territorial government for purposes of the GST/HST, while others are not part of the provincial or territorial government. Whether or not a legal aid plan administrator is part of a provincial or territorial government for purposes of the GST/HST will not affect the tax status of its supplies of legal services.

8. A legal aid plan administrator may supply legal services to clients at no charge, at a discounted rate, or at the full rate ordinarily charged by private sector practitioners. Where a legal aid plan administrator requires clients to pay an amount for the legal services, the amount paid by the client to the legal aid plan administrator is not subject to the GST/HST as the amount is consideration for an exempt supply of legal services.

9. Exempt supplies of legal services made by a legal aid plan administrator to legal aid clients may be rendered in two ways:

  • by employees of the legal aid plan administrator; and
  • by private practitioners whose fees are paid under the legal aid plan.

Example 3

A legal aid plan administrator supplies legal services to a client under a legal aid plan administered under the authority of a provincial government. The legal services are performed by an employee of the legal aid plan administrator. The supply of legal services made by the legal aid plan administrator is exempt from the GST/HST under section 1 of Part V of Schedule V.

Example 4

An individual is in need of legal services. The individual applies and qualifies for legal aid from a legal aid plan administrator who supplies legal services to the client under a legal aid plan administered under the authority of a provincial government. The legal aid plan administrator provides the individual with a voucher that certifies that the legal aid plan administrator will pay for the services of a lawyer. The individual then uses the voucher to obtain legal services from a lawyer in private practice. The supply of the legal services by the legal aid plan administrator to the individual is exempt.

10. Legal services supplied by persons other than a legal aid plan administrator are not exempt under section 1 of Part V of Schedule V.

Example 5

Continuing from Example 4, the individual then provides the voucher to a lawyer in private practice who will take on the individual as a client at the legal aid rate. The lawyer will render the services to the individual but will bill the legal aid plan administrator for those services. The supply of the legal services by the lawyer to the legal aid plan administrator is taxable.

11. Legal aid plan administrators may be able to claim a rebate of the GST/HST paid on purchases of legal services. For more information, refer to GST/HST Memorandum 13.2, Rebates: Legal Aid.

12. Under some provincial or territorial legal aid plans, a supply of legal services may be made by an organization that is separate from the legal aid plan administrator. Such supplies are not exempt under section 1 of Part V of Schedule V.

Example 6

Under a legal aid plan, a community legal clinic supplies legal services to a client. The community legal clinic is a separate person from the legal aid plan administrator. The supply made by the community legal clinic is not exempt under section 1 of Part V of Schedule V, as the community legal clinic is not a legal aid plan administrator. However, another exempting provision in Schedule V may apply.

Legal services provided by other organizations

13. An organization other than a legal aid plan administrator may provide legal services to persons who cannot afford a lawyer or to others in need of legal assistance. Supplies of legal services by such an organization may be taxable or exempt depending on the circumstances.

14. Supplies of legal services by a charity are generally exempt under section 1 of Part V.1 of Schedule V.

15. Subsection 123(1) defines "charity" to mean a "registered charity or registered Canadian amateur athletic association within the meaning assigned to those expressions by subsection 248(1) of the Income Tax Act, but does not include a public institution".

Example 7

A charity operates a community legal clinic where it provides legal services to persons who cannot afford a lawyer. The supply of legal services by the charity is exempt under section 1 of Part V.1 of Schedule V.

16. Supplies of legal services by a public institution (other than a determined municipality) are generally exempt under section 2 of Part VI of Schedule V.

17. Subsection 123(1) defines a "public institution" to mean "a registered charity (within the meaning of subsection 248(1) of the Income Tax Act) that is a school authority, a public college, a university, a hospital authority or a local authority determined under paragraph (b) of the definition "municipality" to be a municipality".

Example 8

A university that is a registered charity, and therefore a public institution for purposes of the GST/HST, operates a legal clinic run by students. The clinic is part of the university. Supplies of legal services made by the public institution are exempt under section 2 of Part VI of Schedule V.

18. Most supplies by non-profit organizations are taxable. Supplies of legal services made by a non-profit organization for consideration are generally taxable.

Example 9

A non-profit organization specializes in immigration law and supplies legal services to clients for a small fee. The services are rendered by an employee of the non-profit organization. The supply of legal services by the non-profit organization is taxable.

19. Supplies by a public sector body of legal services, where all or substantially all (90% or more) of the supplies are made for no consideration, are exempt under section 10 of Part VI of Schedule V.

20. For the purposes of Part VI of Schedule V, a public sector body includes a government, a non-profit organization, a municipality, a university, a public college, a school authority, and a hospital authority.

Example 10

A non-profit organization provides legal services to persons who cannot afford a lawyer. The non-profit organization provides 91% of its legal services free of charge. All the legal services supplied by the non-profit organization are exempt under section 10 of Part VI of Schedule V as all or substantially all of the non-profit organization's supplies of legal services are made for no consideration.

21. Supplies by a public service body (other than a municipality) of legal services that were purchased for resale for an amount that does not, and could not reasonably be expected to, exceed the direct cost of the legal services, may be exempt under section 6 of Part VI of Schedule V.

22. For the purposes of Part VI, Schedule V, a "public service body," includes a non-profit organization, a municipality, a school authority, a hospital authority, a public college, or a university.

23. Assuming no other exempting provision applies, if a public service body wants to recover only its direct cost, it can choose to make its supplies of legal services either exempt or taxable depending on its tax treatment of the sale. If a public service body supplies the legal services for a price that is no more than the direct cost and it does not charge the GST/HST, these supplies are exempt. However, if a public service body supplies the legal services for a price that is equal to or more than the direct cost (not including the GST/HST and the Quebec Sales Tax (QST), when the person is a QST registrant) and charges an amount as GST/HST in respect of the supply, these supplies are considered to be taxable supplies.

24. Subsection 123(1) defines "direct cost" of a service to include the total amount paid for:

  • a service that is intended for resale;
  • any GST/HST payable by the supplier in respect of the acquisition or importation of the service; and
  • any tax, duty or fee that is prescribed for the purposes of section 154 (including any QST) and any non-recoverable provincial taxes, duties and fees payable.

25. The "direct cost" of a service does not include administrative or overhead expenses, or employees' salaries.

Example 11

A non-profit organization acquires legal services from a lawyer in private practice for the purpose of re-selling the legal services to a client of the non-profit organization. The non-profit organization then supplies the legal services to the client for an amount that does not exceed the direct cost of the legal services. The non-profit organization does not charge the client an amount as GST/HST in respect of the supply. The supply of the legal services by the non-profit organization to the client is exempt under section 6 of Part VI of Schedule V.

Further information

All GST/HST technical publications are available on the CRA website at www.cra.gc.ca/gsthsttech.

To make a GST/HST enquiry by telephone:

  • for general GST/HST enquiries, call Business Enquiries at 1-800-959-5525
  • for technical GST/HST enquiries, call GST/HST Rulings at 1-800-959-8287

If you are located in Quebec, call Revenu Québec at 1-800-567-4692 or visit their website at www.revenuquebec.ca.

If you are a selected listed financial institution (whether or not you are located in Quebec) and require information on the GST/HST or the QST, go to www.cra.gc.ca/slfi or

  • for general GST/HST or QST enquiries, call Business Enquiries at 1-800-959-5525
  • for technical GST/HST or QST enquiries, call GST/HST Rulings SLFI at 1-855-666-5166
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