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.
TO
[Addressee]
FROM
Manjula Vethanayagam
Sr Rulings Officer
Insurance and ITC Allocation
Excise & GST/HST Rulings Directorate Place de Ville,
Tower A, 15th floor
320 Queen St., Ottawa
Case Number: 181567
SUBJECT : GST/HST INTERPRETATION
Application of GST/HST to insurance related services provided by motor vehicle dealers
This is further to your [correspondence] of [mm/dd/yyyy] and our discussion, regarding the application of GST/HST to supplies provided by a motor vehicle dealer regarding the sale of insurance issued by […] (the Insurer).
[The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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.
[FACTS]
Based on your [correspondence] and the documentation provided, including […], the Group Master Policy (the Policy) issued by the Insurer to […] (the Dealer) a motor vehicle dealer located in […][Province X] and a sample certificate of insurance, we understand the following:
1. The Insurer is an insurance corporation incorporated under […].
2. The Insurer issues the Policy to the Dealer to provide creditor’s group insurance coverage to customers of the Dealer, including life insurance, disability insurance and/or critical illness insurance (creditor’s group insurance) on the amount financed by the customer.
3. The Insurer provides the Dealer with training on the creditor’s group insurance products offered by the Insurer and the procedures to be followed for the administration of the creditor’s group insurance products offered under the Policy. The Dealer completes the insurance certificates for eligible debtors in accordance with the Insurer’s procedures.
4. The Dealer is responsible for ensuring compliance with all provincial and federal legislation and regulations, including applicable licensing requirements for the promotion of the creditor’s group insurance.
5. The Dealer provides the customer with a short application form that is also a certificate of insurance. The certificate of insurance includes the insured’s name, address, age, financing amount and whether life, critical illness insurance and/or disability insurance is elected.
6. The Dealer computes the premiums at rates specified by the Insurer, and collects them from the insureds to be held in trust for the Insurer. The Dealer provides the customer with a completed copy of the certificate of insurance.
7. The Dealer remits the insurance premium to the Insurer and provides the Insurer with reports regarding the insurance certificates provided to the customers.
8. The Insurer agrees to pay the Dealer an expense allowance for administration of the Policy.
9. […].
[INTERPRETATION REQUESTED]
Is the commission paid to the Dealer by the Insurer consideration for an exempt supply of a financial service?
[INTERPRETATION GIVEN]
[…].
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).
As indicated by the Explanatory Notes to the ETA the term “arranging for” in paragraph (l) of the definition of financial service in subsection 123(1) is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii) such as a person whose principal business is as an insurance agent or broker.
The responsibilities of the Dealer, which include completing a short insurance certificate and providing a copy to the insured, calculating the premium based on rates specified by the Insurer, collecting and remitting the premium to the Insurer and providing a monthly report to the Insurer are of a promotional and administrative nature. These activities are predominantly promotional and administrative activities performed in accordance with the Insurer’s guidelines. They are not intermediation activities that are normally performed by a person whose principal business is as an insurance agent or broker.
The Dealer is providing a supply of a promotional and administrative service 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).
[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(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.]
If you have further questions or require clarification on the above information, please contact me at 613-670-1356.
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