Tuesday, December 20, 2005

British Columbia Court of Appeal Declares Social Services Tax on Legal Fees Partly Unconstitutional

This morning, in a majority decision, the British Columbia Court of Appeal declared that "to the extent that the [Social Service Tax] Act purports to tax legal services related to the determination of rights and obligations by courts of law or independent administrative tribunals, it is unconstitutional as offending the principle of access to justice, one of the elements of the rule of law." The case is Christie v. British Columbia, 2005 BCCA 631. Madam Justice Newbury wrote the majority decision, with Prowse and Donald JJA concurring, and Southin and Thackray JJA dissenting.

British Columbia's sale tax legislation sets a 7 % tax on legal services as well as goods. (The tax is not applied to other services. As far as I can tell legal services were singled out because the government of the day didn't like lawyers.)

The Supreme Court of British Columbia had earlier held that the Social Services Tax Act, RSBC 1996, c. 431, was unconstitutional in so far as it applied to low income individuals, because it limited their access to justice. The Court of Appeal has now carved out a larger exemption for legal services from the tax.

However, the ambit of the exemption is not clear to me. It appears that lawyers will continue to be required to charge tax on legal fees for such services as giving estate planning advice, drafting wills and advising and assisting executors with probate and estate administration. On the other hand, legal fees for handling estate litigation trials will not be subject to the tax. But what if one of the parties starts a lawsuit which is settled before trial? Will the lawyers who act for the parties to the lawsuit have to charge the tax? What if a threatened lawsuit is settled before anyone files a writ of summons starting the suit? As I read the judgment, lawyers probably are not required to charge the tax when a suit or potential suit is settled, but I am waiting for some guidance from the Law Society of British Columbia on this issue.

Madam Justice Newbury's judgment contains a fascinating discussion of unwritten constitutional principles of access to justice and the rule of law.

[Since I wrote this post, the Supreme Court of Canada has released its decision holding that the sales tax on legal fees is constitutional. You can read about it here.]

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