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Are you entitled to GST on your court costs and disbursements?

By Pierce Bedogni - 15 Mar 2018

In most cases in litigation, the losing party contributes to the winning party's costs. The Court awards those costs based on a 'scale' (scale costs). In theory, scale costs are meant to reflect a reasonable contribution to the actual costs incurred, which is approximately two-thirds of a party's costs.

In certain circumstances, a party may be entitled to an increase from the scale costs or even full reimbursement of their legal costs and disbursements. In relation to full reimbursement of legal costs, confusion has existed amongst lawyers as to whether Goods and Services Tax (GST) can be claimed.

The Court of Appeal has however ruled on the issue. A GST registered party cannot claim GST on an award for legal costs and disbursements. This is because that party can claim a GST credit from the Inland Revenue Department on its original legal costs and disbursements paid to its solicitor. If the Court awarded GST, in addition to the costs and disbursements awarded, then the winning party would obtain a double recovery of GST.

A non-GST registered party is entitled to claim GST on its award of costs and disbursements, as it does not have an ability to recover GST from the Inland Revenue Department. However, that party must notify the Court in advance, so the Court can consider this when making its award.

If you have any further queries relating to the legal issues around awards of legal costs and disbursements, please contact Tony Johnson or Pierce Bedogni.

 

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