Is GST/HST charged on legal fees in Canada?
Yes. Legal services are a taxable supply under the Excise Tax Act and are subject to GST/HST (or QST in Quebec) at the applicable provincial rate. Your lawyer must charge GST/HST on all taxable supplies, including retainer fees, hourly fees, disbursements marked up as part of the supply, and legal opinions. Some legal services are zero-rated (e.g., legal aid services) or exempt. The lawyer must issue a valid GST/HST invoice for you to claim Input Tax Credits (ITCs) if you are a business registrant.
Can I claim back the GST/HST paid on legal fees?
If you are a GST/HST-registered business and the legal services were acquired for use in your commercial activities, you can claim a full Input Tax Credit (ITC) to recover the GST/HST paid. Claim the ITC on your GST/HST return in the reporting period you received the invoice and paid for the service. If the legal services relate to mixed personal and business use, only the business portion qualifies for an ITC. Personal legal fees (divorce, estate planning, personal injury) do not qualify for ITCs.
Are legal fees tax-deductible for income tax purposes?
Legal fees are deductible for income tax purposes when they are incurred to earn business or employment income, to challenge or dispute a CRA assessment, to collect salary or wages owed to you, or to obtain support payments (by the recipient). Personal legal fees — wills, real estate transactions, divorce property settlements — are generally not deductible for income tax purposes. The GST/HST paid on non-deductible fees is also not recoverable.