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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 153595
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to insurance related services provided by […][Dealers]
This is in response to […][correspondence] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided by […][Dealers] related to the sale of insurance issued by […] (the Insurer). We apologize for our delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador; 14% in Prince Edward Island; and 15% in Nova Scotia. The Governments of New Brunswick and Newfoundland and Labrador have proposed to increase the rate of the HST in those provinces from 13% to 15% effective July 1, 2016. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the documentation provided, […], we understand the following:
[…]
* The group policy provided is a group creditor life and accident and sickness insurance policy (the Policy).
* The Insurer provides group creditor life and dismemberment, or accident and sickness (disability) insurance for customers and co-signors (the insured) […] who have selected coverage. The insured is eligible for insurance coverage only if, on the effective date of the insurance, he or she is a natural person, has entered into a finance contract (evidencing the debt owed the financial institution […] by the insured), or has entered into a lease contract, and has completed the election of coverage.
* The Policy provides for the payment of all or part of the insured’s indebtedness under the finance contract or lease, depending on the coverage selected by the insured, and the limits of the Policy.
* A certificate of insurance (Certificate) is issued to each insured in consideration of the payment of the premium, as determined by the Insurer, for the benefits being provided. The Policy outlines the information which must be included in the Certificate as well as the limitations and exclusions to the insurance coverage.
[…]
* The Dealer is authorized to complete and provide the Insurer’s certificates of insurance to eligible persons and to collect and remit premiums paid to the Insurer by a customer or customer’s creditor […] in respect of such enrollment.
* The Dealer also agrees to:
- collect all of the information required by the certificate of insurance;
- verify the customer’s identity using government issued photo ID;
- retain all records relating to the sale of insurance; and
- remit all premiums collected to the Insurer within 10 days after the end of the month in which they were collected;
* The […] Dealer’s authority is subject to any underwriting instructions provided by the Insurer and is limited by the terms, conditions, limitations, and exclusions of the group policy. The Dealer has no authority to modify the group policy, or to waive on behalf of the Insurer, any rights or responsibilities stipulated on the certificate of insurance.
* Furthermore, the premiums collected by the Dealer are always the property of the Insurer and are deemed to be held in trust by the Dealer for the Insurer until remitted.
[…]
* The sample Certificate is a one-page application form completed by a customer in applying for the insurance from the Insurer, and is also evidence from the Insurer of the customer or co-signor’s (or both) enrollment in the Policy. The Certificate includes basic information regarding the insured, such as name and email address, a few brief yes or no questions regarding the insured’s medical history and provides a summary of the terms and conditions of the insurance on the back of the form.
Dealers are paid commissions from the Insurer based on the value of insurance premiums for which the Dealers enroll their customers. Commission […][will] vary between the various Dealers […]. The sample Dealer […] Reports provided showed a commission of […] paid to one particular Dealer, and a commission of […] paid to another Dealer.
[…].
RULING REQUESTED
You would like confirmation that the commissions paid to the Dealer by the Insurer are exempt from GST/HST, being consideration for a supply of a financial service.
RULING GIVEN
Based on the facts set out above, we rule that the supply by the Dealer to the Insurer is not an exempt supply of a financial service.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
A supply of property or a service made in Canada is taxable unless it is exempt under Schedule V to the ETA. A supply of a financial service is exempt under Part VII of Schedule V to the ETA unless it is specifically zero-rated under Part IX of Schedule VI to the ETA (which generally requires that the supply be made by a financial institution to a non-resident and that certain other conditions be met).
A financial service is defined in subsection 123(1) to mean anything that is included in any of paragraphs (a) to (m) of that definition and that is not excluded by any of paragraphs (n) to (t) of that same definition. For example, a financial service includes, under paragraph (d), the issue, granting, allotment, acceptance and transfer of ownership or repayment of a financial instrument. A “financial instrument” is defined in subsection 123(1) to include an “insurance policy”. The definition of financial service includes in paragraph (l), the agreeing to provide, or the arranging for, a service that is referred to in any of paragraphs (a) to (i), and is not referred to in any of paragraphs (n) to (t).
The term "arranging for" in paragraph (l) is generally intended to include intermediation activities that are normally performed by a person whose principal business is as a trader or dealer in, or as a broker or salesperson of, financial instruments or money. The activities of the Dealer include completing and providing insurance certificates to the Dealer’s customers, collecting information and verifying the customer’s identity, and remitting the insurance premiums to the Insurer. These activities are predominantly administrative services performed in accordance with the Insurer’s guidelines. They are not intermediation activities that are normally performed by an insurance agent or broker as its principal business. Therefore, the Dealer is providing a supply of administrative services to the Insurer and this supply is not an exempt supply of an arranging for service under paragraph (l) of the definition of a financial service in subsection 123(1).
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 780-495-7507. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Eleanor Struth
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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