NATIONAL IMMIGRATION LAW PD CONFERENCE NEED TO KNOW TAX LAW FOR IMMIGRATION LAWYERS

Transcription

1 Photo: Tourism Toronto, 2003 NATIONAL IMMIGRATION LAW PD CONFERENCE NEED TO KNOW TAX LAW FOR IMMIGRATION LAWYERS INVOICING YOUR CLIENTS : SALES TAX CONSIDERATIONS Christos Panagopoulos Heenan Blaikie LLP, Montreal May 11, 2013

2 Importance of Invoicing Correctly Service provider (i.e. law firm) acts as agent of the Crown. Must charge, collect and remit tax on behalf of Crown. Applying incorrect rate of sales tax will also lead to penalties and interest. 2

3 GST/HST Every recipient of a taxable supply made in Canada must pay to the Crown a 5% sales tax calculated on the value of the consideration of the supply. 5% sales tax is known as the Goods and Services Tax («GST»). If the supply is made in a participating province, an additional amount of sales tax is added to the GST and the entire amount is referred to as the Harmonized Sales Tax («HST»). The HST is the combination between the GST and the provincial sales tax rate of a participating province. 3

4 Participating Provinces Participating provinces are: 1. Ontario (8%); 2. Nova Scotia (10%); 3. New Brunswick (8%); 4. Newfoundland and Labrador (8%); and 5. Prince Edward Island (9%). 4

5 Non-Participating Provinces Non-participating provinces are: 1. British Columbia; 2. Québec; 3. Saskatchewan; 4. Manitoba; 5. Alberta; and 6. Territories. 5

6 General Principles GST is charged to a recipient of a taxable supply that is made in Canada. 4 concepts must be considered : 1. «Supply»; 2. «Recipient»; 3. «Made in Canada»; and 4. «Taxable Supply». 6

7 «Supply» General Principles (cont d) A supply means the provision of property or a service in any manner. Thus, a legal service is a supply for GST/HST purposes. 7

8 «Recipient» General Principles (cont d) A recipient of a supply means the person who is obligated to pay for the supply (e.g. the legal services). This means that the recipient is not necessarily the person who receives or uses the legal services. 8

9 General Principles (cont d) «Made in Canada» A taxable supply will only be subject to GST/HST if it is made in Canada. A service (including legal services) will be deemed to be made in Canada if the service is performed in whole or in part in Canada. 9

10 General Principles (cont d) «Taxable Supply» Once the supply is deemed to have been made in Canada, we must determine what type of supply was made. For GST/HST purposes there are 3 types of supplies: 1. Taxable (5%, plus HST rate of participating province); 2. Zero-rated (0%); and 3. Exempt (no GST/HST). 10

11 General Principles (cont d) All supplies are taxable unless they are zero-rated or exempt. As a rule, legal services are taxable supplies (unless zero-rated in certain circumstances). 11

12 Zero-Rated Legal Services 1. A supply made to a recipient who is a non-resident of Canada of an advisory, consulting or research service that is intended to assist the person in taking up residence or establishing a business venture in Canada («Residence Service»). 2. A supply of an advisory, professional or consulting service made to a recipient who is a non-resident of Canada («Professional Service»). 12

13 Zero-Rated Legal Services (cont d) Residence Service 2 main conditions 1. Supply made to a non-resident person; and 2. Intended to assist the person in taking up residence or establishing a business venture in Canada. 13

14 Zero-Rated Legal Services (cont d) Residence Service Typical Example: Immigration lawyer provides advice to a non-resident on the various laws and regulations with which the client must comply to obtain Canadian residency (temporary or permanent residency). Service is zero-rated up to the moment the non-resident becomes a resident of Canada. 14

15 Zero-Rated Legal Services (cont d) Professional Service Supply made to a non-resident person. Not limited to assisting client to become a resident. May include services rendered to assist client in obtaining a work permit in Canada. Beware of permanent establishment of corporate client. 15

16 Zero-Rated Legal Services Exceptions 1. Services rendered to a non-resident individual in connection with criminal, civil or administrative litigation, other than a service rendered before the commencement of such litigation («Litigation Service»); and 2. Services in respect of real property or tangible personal property («TPP») situated in Canada. 16

17 Zero-Rated Legal Services Litigation Service Exceptions (cont d) Exception only applies: 1. to individuals; 2. for services from the time that a statement of claim is filed with the court or tribunal. Services related to drafting demand letters and legal opinions before statement of claim is filed are zero-rated. 17

18 Place of Supply Rules When legal services are not zero-rated 5% GST will apply. HST will apply if services are made in a participating province. New Harmonized Value-Added Tax System Regulations must be considered to determine HST rate. 18

19 Place of Supply Rules (cont d) Litigation Services before a provincial court/tribunal. HST rate of the participating province under which court/tribunal is established. If at appeal level, HST rate of the province under which first instance court/tribunal is established. 19

20 Place of Supply Rules (cont d) Other legal services Must look at address of client (i.e. the recipient of the supply). Must consider multiple addresses. 20

21 Place of Supply Rules (cont d) Client has 1 home or business address. Services will be deemed to have been supplied in the participating province where the address is located. Home address is generally where the primary residence is located. Must be address of the client. or IP address are irrelevant. 21

22 Place of Supply Rules (cont d) Client has many home or business addresses. Services are deemed to have been supplied in participating province where the services are most closely connected. We must not simply select an address. Usually address provided in Retainer Agreement. 22

23 Place of Supply Rules (cont d) Services not supplied in a participating province. 5% GST will apply. No HST. Must consider provincial sales tax («PST») of nonparticipating provinces. 23

24 Alberta and Territories Do not have a PST system. Thus, only 5% GST is applicable. 24

25 Québec Québec applies the Québec Sales Tax («QST»). Rate is 9.975%. Thus, 5% GST plus 9.975% QST. QST rules harmonized to HST rules. 25

26 British Columbia Provincial Sales Tax Act, SBC 2012, Chapter 35. Legal Services are subject to PST. Rate is 7%. Legal Services means, services that come within the meaning of the practice of law under the Legal Profession Act, SBC 1998, Chapter 9. 26

27 British Columbia (cont d) "practice of law" includes (inter alia) (a) appearing as counsel or advocate, (b) drawing, revising or settling a document for use in a proceeding, judicial or extrajudicial, a document relating in any way to a proceeding under a statute of Canada or British Columbia, or (c) giving legal advice. but does not include any of those acts if performed by a person who is not a lawyer and not for or in the expectation of a fee, gain or reward, direct or indirect, from the person for whom the acts are performed. 27

28 British Columbia (cont d) Legal services are subject to 7% PST if : 1. Legal Services Provided in BC; and 2. Legal Services Provided outside BC. 28

29 British Columbia (cont d) Legal Services Provided in BC 1. PST will apply if client is resident or carries on business in BC. 2. PST will apply if client is a non-resident of BC and the legal services are in relation to, inter alia: a. real property or TPP situated in BC or that will be delivered in BC; or b. a court or any other proceeding in BC or a possible such proceeding. 29

30 British Columbia (cont d) Legal Services Provided outside BC 1. PST will apply if client resides or carries on business in BC and the legal services relate to BC. 2. Legal services relate to BC in the following situations: a. legal services in relation to real property or TPP situated in BC; b. legal services in relation to a court or any other proceeding in BC; 30

31 British Columbia (cont d) Legal Services Provided outside BC (cont d) 2. Legal services relate to BC in the following situations (cont d): c. a matter that involves the interpretation or application of BC legislation; d. a matter that involves the interpretation or application of legislation of a jurisdiction other than BC or a contract, if the matter is in relation to: (i) a physical or legal presence in BC; or (ii) an activity or transaction in BC. 31

32 British Columbia (cont d) Are Immigration Services Provided by a Lawyer subject to the BC PST? Services provided by a lawyer are caught by the definition of practice of law since lawyers provide legal advice; No specific exemptions in law; BC Ministry of Finance exempts immigration services provided by lawyers as long as the services do not include or lead to giving legal advice. See Bulletin PST

33 British Columbia (cont d) Transitional Rules BC PST applies as of April 1, Where the consideration for the legal services is paid or becomes due prior to April 1, 2013, BC PST will not apply. This means that legal services provided before April 1, 2013 but invoiced after that date, will be subject to BC PST. 33

34 Manitoba and Saskatchewan Manitoba has a 7% retail sales tax. **** The 2013 budget increases the sales tax rate to 8% (from 7%), starting July 1, Saskatchewan has a 5% PST. Both provinces exempt immigration and emigration services. 34

35 Registration GST/HST Registration Every person engaged in a commercial activity (e.g. practice of law) in Canada must be registered for GST purposes. If registered for GST, automatically registered for HST. 35

36 Registration (cont d) Québec (QST Registration). Every person who makes a taxable supply in Québec in the course of a commercial activity engaged in by the person in Québec is required to be registered for QST purposes. Out of province law firms must be registered only if carrying on business in Québec. 36

37 Registration (cont d) British Columbia A law firm in BC must be registered. An out of province law firm is required to be registered if in the ordinary course of its business in BC, it provides legal services in BC. 37

38 Practical Examples Example no. 1 - Sponsoring Relative from Inside Canada Mr. A carries on the practice of law in Ontario, specifically in the area of immigration law; Mr. A has been retained to provide a legal service to a Canadian resident (the Client ) in connection with an application for permanent residence of a family member residing in a foreign jurisdiction; and The Client resides in Ontario and has provided his home address to Mr. A as the billing address. 38

39 Practical Examples (cont d) Example no. 1 - Sponsoring Relative from Inside Canada (cont d) Recipient of the supply is a resident of Canada. The supply cannot be zero-rated. Rate of HST will be that of the province of Ontario since that is the residential address of the Client. Supply would have been zero-rated if the client was the family member residing in the foreign jurisdiction, since, in such a case, the supply would have been provided to a non-resident of Canada. 39

40 Practical Examples (cont d) Example no. 2 - Individual Applying for Permanent Residence from Outside Canada Ms. A carries on the practice of law in Québec, specifically in the area of immigration law; Ms. A has been retained to assist a non-resident of Canada (the Client ) in connection with an application for permanent residence of the Client; and The Client resides in a foreign jurisdiction and does not have any residential address in Canada. 40

41 Practical Examples (cont d) Example no. 2 - Individual Applying for Permanent Residence from Outside Canada (cont d) Client is a non-resident of Canada. Service consists of an advisory, consulting or research service that is intended to assist the person in taking up residence in Canada. Supply is zero-rated. No GST. No QST. Service will retain its zero-rated status until the Client becomes a resident of Canada. 41

42 Practical Examples (cont d) Example no. 3 - Canadian Corporation Bringing in Temporary Foreign Worker in Nova Scotia Mr. A carries on the practice of law in Nova Scotia, specifically in the area of immigration law; Mr. A has been retained to assist a Canadian corporation with offices all across Canada (the Client ) to bring in a temporary foreign worker (the Worker ); and The Worker will be employed at an office of the Client located in Nova Scotia. 42

43 Practical Examples (cont d) Example no. 3 - Canadian Corporation Bringing in Temporary Foreign Worker in Nova Scotia (cont d) Recipient of the supply is a resident of Canada. Supply cannot be zero-rated. Considering that the Client has many offices across Canada, we must determine the address that is most closely connected with the supply. In the present case, since the Worker will be assigned to the Nova Scotia office, the HST rate of that province will apply. 43

44 Practical Examples (cont d) Example no. 4 - Canadian Corporation Bringing in Temporary Foreign Worker in Alberta Ms. A carries on the practice of law in Alberta, specifically in the area of immigration law; Ms. A has been retained to assist a Canadian corporation with offices all across Canada (the Client ) to bring in a temporary foreign worker (the Worker ); and The Worker will be employed at an office of the Client located in Alberta. 44

45 Practical Examples (cont d) Example no. 4 - Canadian Corporation Bringing in Temporary Foreign Worker in Alberta (cont d) Recipient of the supply is a resident of Canada. Supply cannot be zero-rated. Considering that the Client has many offices across Canada, we must determine the address that is most closely connected with the supply. Since the Worker will be assigned to the Alberta office, no HST will apply since Alberta is not a participating province. As a result, only the 5% GST must be charged to the Client. 45

46 Practical Examples (cont d) Example no. 5 Foreign Corporation Sending Temporary Foreign Worker to Canada Mr. A carries on the practice of law in Ontario, specifically in the area of immigration law; Mr. A has been retained to provide a legal service to a foreign multinational corporation with an office in Ontario (the Client ) in connection with bringing in a temporary foreign worker (the Worker ); and The Worker will be performing his employment duties at the office in Ontario. 46

47 Practical Examples (cont d) Example no. 5 Foreign Corporation Sending Temporary Foreign Worker to Canada (cont d) Is the Client a non-resident? It is reasonable to conclude that the office of the Client will create a permanent establishment ( PE ) in Canada. Client will be deemed to be resident in Canada in respect of its activities carried on through that PE. Services provided by Mr. A will not be zero-rated since they are not provided to a non-resident of Canada. Applicable HST rate will be that of Ontario. 47

48 Practical Examples (cont d) Example no. 6 - Refugee Hearing Ms. A carries on the practice of law in BC, specifically in the area of immigration law; Ms. A has been retained to represent a non-resident of Canada (the Client ) before the Immigration and Refugee Board of Canada; and The hearing will take place in BC. 48

49 Practical Examples (cont d) Example no. 6 - Refugee Hearing (cont d) Client is a non-resident of Canada. Service consists of an advisory, consulting or research service that is intended to assist the person in taking up residence in Canada. Service is zero-rated. No GST. BC PST must be charged since legal services are provided in BC to a non-resident person and relate to a court proceeding in BC. 49

50 Practical Examples (cont d) Example no. 7 Individual applying for work or study permit from outside Canada Mr. A carries on the practice of law in BC, specifically in the area of immigration law; and Mr. A has been retained to represent a non-resident of Canada (the Client ) in view of obtaining a work or study permit in Canada. 50

51 Practical Examples (cont d) Example no. 7 Individual applying for work or study permit from outside Canada (cont d) Client is a non-resident of Canada. Service is not intended to assist Client in taking up residence. Service is zero-rated since it consists of a legal service that does not involve litigation. BC PST? If no legal advice provided, then no BC PST based on administrative position of BC Ministry of Finance. 51

52 Practical Examples (cont d) Example no. 8 Individual applying for an extension of visitor status Ms. A carries on the practice of law in BC, specifically in the area of immigration law; and Ms. A has been retained to represent an individual (the Client ) in view of applying for an extension of visitor status. 52

53 Practical Examples (cont d) Example no. 8 Individual applying for an extension of visitor status (cont d) Is the Client a non-resident? If non-resident, no GST (zero-rated supply). If resident, 5% GST. BC PST? If no legal advice provided, then no BC PST based on administrative position of BC Ministry of Finance. 53