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.
September 12, 2012
To
[Addressee]
From
Neil Varan
Technical Policy Advisor
Excise Taxes and Other Levies
Place de Ville, Tower A - 20th Floor, 320 Queen Street, Ottawa, ON
Case Number: 145153
Subject: Excise Interpretation
Insurance Net Premiums - Credit/Bonus from Insurance Provider
Thank you for your [correspondence] of June 7, 2012 concerning the application of the Excise Tax Act to insurance premiums.
All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.
We understand that a company is seeking a refund of the tax paid on insurance premiums under Part I of the Act.
You would like to know whether a company is entitled to a refund of excise tax paid on insurance premiums in the case where the insurance company gives a credit to the insured for not having any claims against its policy.
Based on the information provided, the company is not entitled to a refund of the excise tax paid on premiums which are now being refunded by the insurance company in the form of a bonus or credit for not having any claims against their policy.
Subsection 4(1) mandates that a tax of 10% applies on net premiums on insurance effected outside of Canada.
The Excise Tax Act defines “net premiums” as “mean[ing] the gross premiums paid or payable under a contract of insurance, less dividends received or receivable in respect of the contract and less premiums returned on cancellation of the contract.”
Further, Excise Taxes and Special Levies Memoranda [(ETSL)] 7-1 – “Special Levies – Insurance Premiums” states, in Section 19, that “A contract of insurance is considered to be entered into or renewed on the effective date of the contract. Generally, the premium is payable on the effective date unless the contract provides otherwise. If the premium is payable on a date other than the effective date, the contract is considered to be entered into or renewed on the date the premium is due for purposes of filing a return under Part I of the Act. Therefore, if the effective date of a contract occurs in a calendar year, or the premiums are payable in that year, the contract must be included in the return for that year.”
In this case, the claimant acquired insurance in [yyyy]. Generally, as stated in ETSL 7-1, “the premium is payable on the effective date of the contract.” It is at that point that the calculation of “net premiums” is made for purposes of the Act. Here, at the time the contract was entered into, the amount paid or payable could not have included any kind of “credit” or “bonus” for being claim-free for that very same year ([yyyy]). Such an amount could have only come into existence upon completion of the insurance contract itself, and only then could it be calculable.
Finally, the amount in question does not constitute a dividend, nor is it a premium returned upon cancellation of the contract.
The calculation of the net premiums for [yyyy] was correctly based on the premiums paid or payable under the terms of the contract.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-1140.
Yours truly,
Neil Varan
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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