Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 197768
[Addressee]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of GST/HST to new home warranty insurance products
We would like to thank you for your letter of [mm/dd/yyyy], in which you requested the Canada Revenue Agency (CRA) review its position regarding the application of the goods and services tax/harmonized sales tax (GST/HST) to new home warranty products issued by insurers as outlined in the Excise and GST/HST News No. 104.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We have reviewed your letter and the enclosed […][documentation]. We would like to provide the following comments to clarify our position that where a new home warranty is issued as a policy or contract of insurance by a licensed insurer it is excluded from the definition of an insurance policy for GST/HST purposes as a warranty in respect of the quality, fitness, or performance of tangible property (the new home) where it is supplied to a person who is acquiring that new home otherwise than for resale. In that case, its provision by an insurer is a taxable supply for GST/HST purposes.
To whom is a new home warranty issued?
[…].
[…] according to the […][documentation] you provided, the policy is issued by the insurer to the owner (defined as the person who owns the new home), to provide insurance to the owner and not to the builder. […]. The owner is the insured person and the home is the object of the insurance.
The roles of the builder and insurer are usually set out under a builder agreement, which is a separate agreement from the new home warranty insurance policy. Under the builder agreement you provided […]. Therefore, it is clear that the new home warranty is issued by the insurer to the owner, and not to the builder.
Is a new home warranty a warranty?
[…].
[…] in our view paragraph (a) of the definition of insurance policy in subsection 123(1) clearly contemplates that an insurer can issue a warranty in respect of the quality, fitness, or performance of tangible property, by providing an exclusion in that definition for those warranties in certain cases.
Based on our review of the new home warranty insurance policy you provided, a new home warranty insurance policy is a warranty in respect of the quality, fitness, or performance of tangible property, even though it is issued by an insurer. As indicated in that policy , new home warranty insurance provides coverage for certain defects in the residential complex. […].
[…]. We understand that the builder may have a contractual obligation to the owner under a purchase and sale agreement to repair and replace any defects in the home and a contractual obligation to the insurer under the builder agreement to do the same, however, we note that the insurer’s indemnification is structured as a warranty that is an insurance policy issued to the owner, and not as a guarantee provided to the builder. Further, according to the builder agreement, it is the builder who is providing an indemnification to the insurer with respect to the insurer’s obligations to the owner under the new home warranty. […]. The indemnification by the builder to the insurer is under the builder agreement and is a separate supply from the insurer’s provision of a warranty to the owner under the new home warranty insurance policy.
Therefore, it is our view that a new home warranty insurance policy issued by an insurer is generally a “warranty” in respect of the quality, fitness or performance of tangible property as contemplated by the definition of “insurance policy” in subsection 123(1).
Does a builder supply the new home warranty to the owner?
[…] in our view, a new home warranty insurance policy is issued by the insurer directly to the owner, and not to the builder, to provide insurance to the owner.
According to the builder agreement […], the builder agrees to […] and pay […][the] fee to the insurer at the onset of construction to enroll a particular home in a new home warranty program. However, we note that under the builder agreement, the supply of the new home warranty is only made when the insurer issues the policy to the owner at possession date, and coverage only commences at that time. […].the builder pays the […] fee with the understanding that the insurer will issue the new home warranty to the owner at possession date. Therefore, it appears the […] fee (or part thereof) is paid by the builder to the insurer as an insurance premium on behalf of the owner, to whom the policy is later issued.
Furthermore, it is our view that the supply of the new home warranty is a separate supply from the supply of the home, as there are different suppliers making different supplies to the owner under separate agreements and the owner is aware of these separate suppliers. The builder makes a supply of a new home to the owner under a purchase agreement for the new home, while the insurer makes a supply of the new home warranty to the owner under the new home warranty insurance policy.
Paragraph (a) of the definition of insurance policy includes a policy or contract of insurance (other than a warranty in respect of the quality, fitness or performance of tangible property, where the warranty is supplied to a person who acquires the property otherwise than for resale) that is issued by an insurer. Therefore, as the new home warranty is issued (that is, supplied) to the owner by the insurer, the exclusion to paragraph (a) of the definition of insurance policy will apply where the owner acquires the home otherwise than for resale (for example, for personal use).
[…]
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
Thank you for bringing your concerns to our attention and allowing us the opportunity to clarify our position regarding new home warranty insurance policies issued by insurers. If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-9877.
Yours truly,
Catherine Séguin-Ouimet
a/Director/Directrice/i
Financial Institutions & Real Property Division
/Division des institutions financières et des immeubles
Excise & GST/HST Rulings Directorate
/Direction d’accise et des décisions de TPS/TVH
Canada Revenue Agency
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