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: 164961
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to services regarding travel insurance
Thank you for your letter concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services regarding travel insurance by a travel agency. We apologize for the delay in our response.
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
From your letter and our telephone conversation, we understand that […](the Agency) operates as a travel agency in […][Province 1]. It earns commissions from the sale of travel products including flights, travel packages, hotels, cruises, resort stays, bus tours, as well as commissions from the sale of travel insurance issued by […](the Insurer), a licensed insurer.
[…]
The Agency entered into an agreement (the Agreement) with the Insurer, […].
[…][Responsibilities of the Agency]
[…]
The Insurer is responsible for claims administration, and for providing the Agency’s staff with training related to the insurance products.
When an Agent sells other travel products to a client, the Agent asks the client if he or she is interested in purchasing travel insurance. If so, the Agent explains the various insurance coverages to the client. The Agent then […] completes an online application for the client by filling in basic client information, and where applicable, the answers to a few health related questions. Based on the policy chosen, and the client’s information, the computer advises if a client is accepted and generates a policy.
The Agency is paid a percentage of the premiums as a commission by the Insurer for its insurance sales, based on the type of insurance product sold […].
RULING REQUESTED
Whether commissions received by the Agency from the Insurer in respect of the sale of travel insurance products are in respect of exempt supplies, and therefore not subject to GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that the Agency’s supply to the Insurer under the Agreement is a taxable supply of a promotional and administrative service, and it is not a supply of a financial service included in the definition of financial service in subsection 123(1). The Agency is required to charge GST/HST to the Insurer on its commissions received pursuant to the Agreement.
EXPLANATION
Generally, a GST/HST registrant is required to charge GST/HST on its taxable supplies of property and services made in Canada (other than zero-rated supplies) but not on its exempt supplies. Zero-rated supplies are taxable supplies included in Schedule VI to the ETA and are taxable at the rate of 0%.
All supplies of financial services are exempt (and not taxable) under Part VII of Schedule V to the ETA unless they are 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” 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 Agent regarding the travel insurance are predominantly promotional and administrative services performed in accordance with the Insurer`s guidelines. They are not the intermediation activities that are normally performed by a person whose principal business is as an agent or broker of insurance. Therefore, the Agency is providing a taxable supply of promotional and administrative services to the Insurer, and this supply is not a supply of an arranging for service under paragraph (l) of the definition of a financial service in subsection 123(1).
As there is no exemption for the supply by the Agency to the Insurer under the Agreement, it is a taxable supply, and the Agency is required to charge GST/HST to the Insurer on its commission.
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.
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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