If one party to a lawsuit is awarded costs from another party, can G.S.T. be added on top of the fees and disbursements? For example, suppose that a judge orders a party to pay to the opposite party $1000 costs (but no disbursements). Does the party awarded costs get a cheque for $1000, or a cheque for $1050?
Before 2010, the law was obvious. Former Rule 605(9), (10) provided that a party entitled to receive costs could recover the G.S.T. on those costs only if the recipient gave an affidavit. He or she had to swear that no one else would reimburse the G.S.T., and in particular, that he or she was not eligible to receive an input tax credit from the government.
What did that mean? G.S.T. is a sales tax imposed by the Excise Tax Act. It is borne only by the ultimate consumer, and passed on by every business before the ultimate consumer. If a consumer buys a pair of leather shoes to wear for social purposes, he or she likely bears the full burden of 5% tax on every mark-up added at every step in manufacturing and distribution, from fertilizer and weed-killer for ranchers’ fields, and cattle feed, to trucking the completed shoes to the shoe store. Such taxes generally are called Value-Added Taxes.
And how is it passed on? Each business in the chain of manufacture and supply collects 5% as agent of Canada Revenue, on top of whatever it charges its customer, and pays that 5% to the government. But that same business gets a credit from the government for any GST which it has paid out to those selling to it or giving it services. Indeed, if any business has more credits than collections, the government gives it a cheque for the shortfall. Those credits are the “input tax credit” referred to in the former Rules of Court.
Party-party costs which one litigant pays to his or her opponent are not a fee or service from one to the other. The costs are merely partial reimbursement by one party to his or her opponent. The government does not charge GST on the fee part of party-party costs, nor compel the party receiving the costs to do so.
Party-party costs should not exceed reimbursement. They should not reimburse for a fee which the recipient of the costs did not pay or which will be reimbursed elsewhere. So the winning party cannot collect for filing fees or witness fees which no one charged.
Businesses which are not tiny must register and charge G.S.T. to their customers. They then get refunds (credits) from the government of all the G.S.T. which they paid. Usually G.S.T. which a business collected on top of the ordinary party-party costs payable to the business as would also be about equal to GST reimbursed by the government. So the business would get reimbursed twice for G.S.T. Once by the government, and then again by costs.
That is why before 2010, G.S.T. on top of party-party costs needed an affidavit that the government would not (also) reimburse the recipient party for G.S.T.
In 2010, new Rules of Court were enacted to make all procedure seem simple and all the Rules of Court seem understandable by newcomers. Has eligibility for G.S.T. on top of costs changed? No. Has G.S.T. changed? No. Do lawyers understand that, and follow the Rules of Court? No.
Current Rule 10.48(2) means much the same as the former Rule: no G.S.T. can be added to party-party costs if the recipient is a business which will get back the G.S.T. which it paid, from the government. But the language of this new Rule is vaguer.
And the current 2010 Rules hide the enforcement mechanism. The former Rule plainly said that the payee had to provide an affidavit, or get no GST on top of costs. The 2010 Rules seem to omit that. But it is still there; it is just hidden.
Where? A Bill of Costs is supposed to follow Form 44. The form has obvious blanks to allow G.S.T. to be added to costs. But it also contains a little note toward the end of the form. The note says that someone claiming G.S.T. “warrants that it is not entitled under the Excise Tax Act (Canada) to a refund or rebate ...”. No affidavit is needed now, just a warranty. Nor does the Bill of Costs form refer to R 10.48(2).
But probably it is contempt of court to lie to the Court or its officers. And such a lie could be one of the many indictable offences under the Criminal Code about perverting the course of justice. Such lying could well be obtaining money by false pretenses as well. And a lawyer is guilty of serious misconduct if he counsels or assists a client to make a false statement to the court.
A lawyer might allege that he or she does not know the facts about his or her client. But the Excise Tax Act requires every business billing over $30 thousand gross revenue a year to register and charge and collect G.S.T. So if the party receiving costs is a business, its lawyer has no excuse for adding G.S.T. onto a bill of costs or signing a warranty, barring very special circumstances. (Some financial institutions do not get an input tax credit.)
Why did I write this blog? Because a very experienced person tells me that the Bar needs to know two things. First, what the law is. Second, that draft bills of costs handed to a judge or master never seem to have a signed warranty. It is either present but unsigned, or it is missing. Bills of costs sent to Assessment Officers for approval also very often omit the warranty. Some assessment officers require that the warranty be signed.
See Bechir v. Gowling Lafleur (M) 2017 ABQB 667, JCC 1501 00956 (Nov 3) (¶ 48); 864503 Alta. v. Genco Place Props. (#2) (M) 2018 ABQB 359, JCC 1401 00942 (May 2) (¶ 15); Orubor v. Ladner Gervais (M) 2019 ABQB 328, JCC 1201 14829 (May 6) (¶ 78).
– Hon. J.E. Côté
The Commentaries are intended to call the attention of lawyers to promising or threatening developments in the law, in civil procedure, in developing their skills, or simply to describe something curious, funny or intriguing.
Justice Côté recently retired from the Court of Appeal of Alberta and currently acts as an arbitrator, mediator, or referee under Rules 6.44 and 6.45 of the Alberta Rules of Court.
He may be contacted through Juriliber at email: firstname.lastname@example.org or phone 780-424-5345.