The government could create a “tipping point” that keeps many cash-strapped Ontarians from accessing legal services if it goes ahead with a plan to harmonize the provincial sales tax with the federal goods and services tax, says the president of the Ontario Bar Association.
“That will force up the cost of legal services, and therefore make legal services less affordable to those who otherwise would be able to afford them,” says Jamie Trimble.
The province’s recently unveiled budget included a plan to harmonize the eight-per-cent PST with the five-per-cent GST. It means consumers will have to fork over the extra eight per cent on various items not currently subject to the provincial portion, such as homes over $500,000, fuel, electricity, and automobiles, starting July 1, 2010.
While some items, such as car insurance and kids’ clothing, will remain exempted, professional services like lawyers fees won’t.
Trimble says there are many aspects of the budget that will benefit lawyers, as business people.
Corporate tax rates will go down to 12 per cent from 14 per cent in July 2010, with a further reduction to 10 per cent by 2013; the small business rate will fall to 4.5 per cent from 5.5 per cent; the 4.25-per-cent small business deduction surtax will be eliminated; and capital tax will be eliminated by July 1, 2010, notes Trimble.
“So there are lots of good things, and what it’s going to do is make us more competitive,” he says.
The OBA also recognizes that the government is “in a bind, with the economy doing what it’s doing, tax revenues really affected; the government has some real challenges to face,” says Trimble.
And while there are many “good, sound reasons” for harmonizing the sales taxes, such as the cost of administration, some aspects of the proposal need more discussion, he says.
The OBA has put together a working group to consider how the plan may affect various areas of legal practice, says Trimble.
But Trimble says, “If you extend the HST to cover legal services, then that has the potential to create or exacerbate an access to justice issue.”
County and District Law Presidents’ Association chairman Randall Bocock says the harmonized sales tax applied to legal services seems “somewhat contradictory to the concept of ensuring appropriate access to justice through attempting to keep legal services as affordable as possible.”
Bocock says CDLPA is consulting with the profession before taking an official stance, but acknowledges that various aspects of the harmonized tax strike him as being worth a debate.
While the harmonized tax wouldn’t take hold until next year, Bocock says lawyers effectively need to start adjusting immediately, in terms of business considerations.
Trimble suggests typical social trends in difficult economic times could exacerbate the impact of the harmonized tax. He says the number
of family law issues - such as marital breakdown and family violence - will rise, criminal charges will increase, and employment-related questions will go up during the recession.
“What that means is that those people will need to avail themselves of legal services,” says Trimble. “For some people, that eight-per-cent difference, if it’s levied on legal fees, will be that tipping point and they will not be able to afford legal services. Or services that they need, to the extent that they need, to protect their rights.”
The harmonized sales tax also could wreak havoc in the legal aid system, suggests Trimble. Legal aid services are currently taxed only through the GST.
“If the harmonization works out such that the PST is now part of the HST and hence levied, it means that the amount of money that is put into legal aid is now less effective, because some of that money . . . goes back into the consolidated revenue fund because of the PST portion of the HST,” says Trimble.
Tax lawyer Paul Carenza, a partner at Ogilvy Renault LLP, says the government has a few options on how to proceed with the concerns over added taxation of legal services.
“It can do nothing and just let the 13 per cent apply,” he says. “Alternatively, it can provide some form of exemption if it felt it was worthwhile to do so for individuals. But I think that would be very cumbersome to apply.”
Another option, says Carenza, would be aimed at ameliorating concerns over access to justice. He suggests that legal aid measures could be tweaked to ensure that individuals who can’t afford a lawyer because of the added tax can get some form of help.
Trimble notes that “it’s early in the day,” and the budget will go to the committee stage following first reading in the legislature.
“We will be addressing those sorts of concerns,” he says, adding that the OBA will take no official position on the budget measures until hearing from its members.
“We’re consulting internally. We have 35 practice sections, all of whom may have a different view on the subject,” says Trimble.
“Our position is, we have some concerns, let’s chat.”
Ministry of the Attorney General spokesman Brendan Crawley didn’t directly answer questions regarding the potential impediments to access to justice caused by the added tax on legal services.
He instead pointed to the AG’s efforts at “reaching decision points sooner, and eliminating unnecessary steps.”