GST on Legal Fees in New Zealand: A Practical Guide for Law Firms

Goods and Services Tax applies to legal services in New Zealand at the standard rate of 15%. For most law firms, this is straightforward — you charge GST on your fees, claim input tax credits on your business expenses, and file regular GST returns. But the details matter, particularly when dealing with disbursements, trust account transactions, and clients who are not GST-registered.

This guide covers the practical aspects of GST as it applies to legal billing in New Zealand.

The basics: 15% on professional fees

Legal services are a taxable supply under the Goods and Services Tax Act 1985. Any law firm registered for GST — which is mandatory once annual turnover exceeds $60,000, and virtually all practising firms exceed this threshold — must charge GST at 15% on professional fees.

The standard practice in New Zealand is to quote fees on a GST-exclusive basis. When you tell a client your hourly rate is $350, that means $350 plus GST — the client will pay $402.50 per hour including tax. Your invoices should show the professional fees, the GST amount as a separate line, and the GST-inclusive total.

This is different from some industries where prices are quoted GST-inclusive. In legal practice, the convention is clear: rates are GST-exclusive, and the 15% is added on top. Your letter of engagement should state this explicitly to avoid misunderstanding.

GST on disbursements

Disbursements — expenses incurred on behalf of the client — require more careful treatment. The GST treatment depends on whether the underlying expense is itself subject to GST.

Taxable disbursements are those where the supplier charged GST. Examples include courier fees, process server fees, search fees from commercial providers, expert witness fees (if the expert is GST-registered), and photocopying charges from external providers. When you recover these from the client, the GST component flows through.

Exempt or non-taxable disbursements include court filing fees (which are exempt from GST), LINZ registration fees, and fees paid to government agencies. When you recover these from the client, no GST is added because the original supply was not taxable.

The practical challenge is tracking which disbursements carry GST and which do not. Your practice management software should handle this distinction, but it requires each disbursement to be correctly categorised when entered.

Trust account considerations

Money held in a solicitor's trust account does not attract GST when received — it is held on behalf of the client, not as payment for services. GST only becomes relevant when funds are transferred from trust to the firm's office account in payment of an invoice.

When you render an invoice and transfer the amount (including GST) from trust to office, you account for the GST at that point. The trust account transaction is the transfer; the GST obligation arises from the invoice, not the transfer itself.

One common area of confusion involves settlement transactions in property matters. When a firm handles a conveyancing settlement and receives settlement funds into trust, those funds are not the firm's income and GST does not apply to the settlement amount. GST applies only to the firm's professional fees for handling the transaction.

Invoicing requirements

A valid GST tax invoice from a law firm must include specific information mandated by the GST Act. It must show the supplier's name (the law firm) and GST registration number, the date of the invoice, a description of the services supplied, the GST-exclusive amount, the GST amount, and the GST-inclusive total. For invoices over $1,000 (which most legal invoices will be), the client's name and address must also be shown.

Many practice management systems generate invoices that comply with these requirements automatically. However, it is worth periodically checking that your invoice template includes all required elements, particularly after software updates or template changes.

Quoting fees: GST-exclusive vs GST-inclusive

The Rules of Conduct and Client Care require lawyers to provide clear information about how fees will be charged. When it comes to GST, clarity means being explicit about whether quoted amounts are inclusive or exclusive of GST.

The standard approach is to quote GST-exclusive and state this clearly. For example: "Our hourly rate for this matter is $400 per hour plus GST." Or in a fee estimate: "We estimate the total professional fees for this matter will be in the range of $5,000 to $7,000 plus GST and disbursements."

For fixed-fee arrangements, you can quote either way, but you must be clear. "The fixed fee for this conveyancing transaction is $1,500 plus GST" leaves no ambiguity. "The fixed fee is $1,500" is ambiguous — does it include GST or not? Ambiguity about GST in fee quotes is a common source of client complaints.

How billing software handles GST

The major practice management platforms used in New Zealand — Clio, LEAP, Actionstep, and Smokeball — all support NZ GST at 15%. They calculate GST automatically on invoices and produce compliant tax invoices.

When using AI billing tools like LexUnits to generate time entries, the entries are created on a GST-exclusive basis. This is the correct approach because time entries record the fee component only — your PMS adds the GST when generating the final invoice. LexUnits entries show rates and amounts ex-GST, and when you import them into your PMS, the system applies the 15% GST automatically based on your tax settings.

This separation of concerns — the AI tool generates the billing data, the PMS handles tax and invoicing — is the cleanest approach. It avoids any risk of double-counting GST or applying the wrong rate.

Frequently Asked Questions

Do NZ lawyers charge GST on legal fees?

Yes. Legal services are subject to GST at 15% in New Zealand. Law firms registered for GST — which includes virtually all practising firms, as registration is mandatory once turnover exceeds $60,000 — must charge GST on their professional fees. The GST is typically shown separately on invoices, with fees quoted on a GST-exclusive basis and the 15% added as a separate line item.

Is GST charged on legal disbursements in NZ?

It depends on the disbursement. If the disbursement itself includes GST (such as a courier fee or search fee from a GST-registered provider), the GST component is passed through to the client. If the disbursement is GST-exempt (such as court filing fees or LINZ registration fees), no GST is added. The key distinction is whether the underlying supply from the third party is taxable.

What is the difference between GST-inclusive and GST-exclusive legal fees?

GST-exclusive means the quoted fee does not include GST — the 15% tax is added on top. GST-inclusive means the GST is already included in the quoted amount. Most NZ law firms quote fees on a GST-exclusive basis and add GST as a separate line item on invoices. For example, a professional fee of $1,000 plus GST would result in a total invoice of $1,150 (being $1,000 fee plus $150 GST).