Excise and GST/HST News - No. 106 June 2019

Applewood Holdings concerned a car dealer (Applewood), who entered into a dealer agreement with “Walkaway” to sell group creditor insurance products. Applewood’s services included offering the insurance to its customers, explaining the coverage options, using Walkaway’s administration website to process the documents for the group creditor insurance provided to the customer. For its services provided to Walkaway Applewood received, under the dealer agreement, commissions of 55% of the insurance premium.

The Court concluded that the predominant nature of Applewood’s service was the arranging for the sale of group creditor insurance, which was thereby exempted under s. (l) of the financial service definition.

The CRA will apply the Applewood decision in the same fact situation.

In addition, the CRA will also apply the Applewood decision where a car dealer enters into an agreement with an insurer to sell group creditor insurance to its customers to cover their lease or finance obligations upon the occurrence of certain events such as loss of employment or disability and where under the dealer agreement with the insurer, the car dealer performs the activities referred to in the Applewood decision.

Within the context of the insurance industry, the Applewood decision does not have an impact on the CRA’s position with respect to the services provided by managing general agents and similar entities performing management and administrative services for insurers. Supplies of these management and administrative services are taxable.

The car dealer in Applewood entered into a “Dealer Agreement” with a distributor of credit insurance products under which it was agreed that it would “up sell” the insurance products and assist the car customers in explaining the coverage and in applying for the insurance in consideration for a commission of over 50% of the insurance premium. Pizzitelli J applied the single supply doctrine in finding that the predominant element of what was being supplied by the dealer was an exempt supply of arranging for the insurance – and that the exclusion in (r.4) of the definition of an exempt financial services for promotional and various administrative services did not apply.

CRA stated that it will apply Applewood “in the same fact situation” and also where the car dealer deals directly with the insurer (rather than with the distributor), if “the car dealer performs the activities referred to in the Applewood decision.” CRA further stated:

Within the context of the insurance industry, the Applewood decision does not have an impact on the CRA’s position with respect to the services provided by managing general agents and similar entities performing management and administrative services for insurers. Supplies of these management and administrative services are taxable.