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The place-of-supply rules, as outlined in the 47-page February bulletin, are to be used to determine what tax rate to apply to each service that a law firm or other business provides to clients — wheth- er to charge the Ontario, Nova Scotia, New Brunswick, and Newfoundland & Labrador HST rate of 13 per cent, the B.C. HST rate of 12 per cent, or just the five per cent GST required in other provinces. Under the first of these rules, the deci- sion as to which tax to apply depends on the business address of the client. So, according to the example given by CRA, if an Ontario lawyer represents a client in Quebec on a general business matter that requires a written opinion and several meetings in Quebec to discuss the mat- ter, it may end up that 60 per cent of the work is done in Ontario and 40 per cent in Quebec, but only the Quebec tax rate of five per cent GST will apply. However, chartered accountant Gordon Jessup, of Fuller Landau LLP in Toronto, points out this situation would be different if the Quebec-based client had a Toronto office at which most of the service was performed, in which case the Ontario HST would apply. And if the situation is reversed and a Quebec lawyer is representing an Ontario-based client, the Quebec lawyer will have to collect HST at the Ontario rate — an example of how the introduction of HST in Ontario and B.C. can potentially affect law firms anywhere in Canada. Life gets even more complicated if your law firm deals with clients from several provinces or from outside Canada, as fur- ther rules must be applied to determine which tax to apply. Then there is another set of rules for litigation. In one example provided in the CRA bulletin, when a B.C.-based business consults a law firm about possible legal action and subse- quently hires the same firm to handle the litigation, filing a statement of claim in an Ontario court, the B.C. rate of HST is applied to the fee for the initial consulta- tion, while the Ontario rate is applied as soon as the litigation is launched in Ontario. Since many federal tribunals and other quasi-judicial bodies are located in Ottawa, law firms from anywhere in Canada may find they must charge clients HST at Ontario rates when they take a matter to the Competition Bureau, for example. And their disbursements for court reporters or transcript fees will also be subject to Ontario HST. Yet another set of rules applies to ser- vices rendered in relation to real estate or personal property, since the tax is linked to the location of the property, rather than the business address of the client. However, as Barnett notes, it becomes difficult to determine what tax to apply if a lawyer is giving advice on the business aspects of a property deal or its tax impli- cations. Or, Todgham Cherniak adds, what if a lawyer is advising on a merger and acquisition that involves property in several different provinces. These are situations that one can- not easily program into a computerized billing system or expect support staff to figure out for themselves. They require that the lawyer makes judgments on a case-by-case basis about how the work fits with the various place of supply rules. Todgham Cherniak recommends all law firms design a decision tree that would serve as a framework to help law- yers and support staff figure out what to do about HST in every foreseeable cir- cumstance. And law firms should worry about getting it wrong, she says, not only because they may end up being assessed taxes, plus penalties and interest, but also because it would be a huge embar- rassment for lawyers to show they don't understand the tax regulations or that they haven't bothered to put in the time and effort to put an effective decision- making process in place. Although she has one last caveat: there is always a possibility the CRA may ask firms for documentation to back up their decisions about whether or not to collect HST and at what rate, so law firms need to ensure they document the reasons for their decisions. However, an issue may arise in future if the tax department wants to audit a law firm on these decisions because it may not be possible to show auditors the evidence without breaching solicitor-client privilege. Freelance journalist and business writer Kevin Marron can be reached at kevin@ kevinmarron.com. www. C ANADIAN Law ye rmag.com JUNE 2010 23 ntitled-2 1 5/14/10 1:34:50 PM