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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 197697
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of GST/HST to services related to insurance
Thank you for your letter of [mm/dd/yyyy] concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to services provided by […](the Company).
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.
We understand that the Company is […] [a] corporation which provides services to insured policyholders regarding their property insurance claims when a policyholder is disputing an insurance settlement offered by their insurer and requires the Company to negotiate with the insurer for a higher settlement.
The Company has not applied to […][the provincial licensing authority] to be licensed as an adjusting firm. […].
The Company has provided a generic [agreement] […](the Agreement) which it intends to use for all of its policyholder clients. […][Information about the terms of the Agreement]
The Agreement provides for the Company to charge the policyholder a fee […]
As part of the Agreement, the policyholder signs […][authorization] indicating that they have retained the Company to represent them fully with their insurance claim, and that the Company, instead of the policyholder, should be communicated with regarding the claim, and that all payments are to be made directly to the Company.
You advised that if the policyholder requires appraiser services only, a separate contract will be entered into between the policyholder and the Company’s appraiser.
The sample […][invoice] provided outlines the results of the settlement with the insurer, as well as its fees and disbursements. In this particular case, […].
You advised that the Company does not provide services regarding health claims or marine claims.
The Company is registered for GST/HST.
We acknowledge your request for a ruling on the tax status of the Company’s supplies; however, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established (for example, we have only been provided with a generic agreement), we are unable to rule at this time. Rather, we are providing the following interpretation which we trust will be of assistance.
INTERPRETATION REQUESTED
You would like to know whether the services of the Company are exempt supplies that are included in paragraph (j) of the definition of financial service and not excluded by any of paragraphs (n) to (t) of that definition.
Further, you would like information on the eligibility of the Company to claim input tax credits (ITCs) where it is engaged in providing both taxable and exempt supplies.
INTERPRETATION GIVEN
Adjuster services
A supply of a financial service is exempt unless it is zero-rated under Part IX of Schedule VI. Paragraph (j) of the definition of financial service includes:
The service of investigating and recommending the compensation in satisfaction of a claim where
i. the claim is made under a marine insurance policy, or
ii. the claim is made under an insurance policy that is not in the nature of accident and sickness or life insurance and
A. the service is supplied by an insurer or by a person who is licensed under the laws of a province to provide such a service, or
B. the service is supplied to an insurer or a group of insurers by a person who would be required to be so licensed but for the fact that the person is relieved from that requirement under the laws of a province.
As the Company does not provide its services to an insurer or group of insurers, where the Company provides services related to property insurance policies (other than marine), its services will only be included in paragraph (j) of the definition of financial where:
* The Company’s service is investigating and recommending the compensation in satisfaction of a claim; and
* The Company is licensed under the laws of […][a province] to provide such a service.
Under the Agreement, the Company agrees to represent the policyholder in connection with their property claim, and to take over the claim at whatever stage it is at and manage and direct it to full completion and settlement. The Company agrees to perform a number of activities in the course of providing its supply, including […]
It appears that under the Agreement, the Company is providing a single supply of a service related to an insurance claim. In making that supply, it performs various activities as needed to negotiate and advance the policyholder’s position to the insurer (or the insurer’s adjuster) regarding the claim with a goal of maximizing the claim settlement for the policyholder. Although this service may include some elements that may be considered to be “investigating” or “recommending” regarding the claim, overall, the single supply for which the Company is paid its commission by the policyholder appears to be in essence a service of negotiating and advancing the policyholder’s position to the insurer, and not a supply of “investigating and recommending the compensation in satisfaction of a claim”. As such, it does not appear to be included in paragraph (j) of the definition of financial service.
Furthermore, even if the Company were to make a supply of investigating and recommending the compensation in satisfaction of a property insurance claim, its services would not be included in paragraph (j) unless it were licensed under the laws of [a province] to provide such a service, that is, as an adjuster.
Claiming ITCs
A person is generally eligible to claim an ITC on property or a service it acquires to the extent that the property or service was acquired by the person for consumption, use or supply in the person's commercial activities, that is, for the person to make taxable supplies for consideration, where all other conditions for claiming an ITC are met. Conversely, a person is generally not eligible to claim an ITC on property or a service to the extent that the person acquires the property or service for purposes other than to make taxable supplies for consideration, for example, to make exempt supplies.
Therefore, if property or a service is acquired to make both taxable and exempt supplies, a person must generally determine the extent of the use of the property or service for each of these purposes in order to determine the amount of the ITC which the person may claim for the GST/HST paid on that property or service. Under subsection 141.01(5), the method used by a person for this allocation must be fair and reasonable and used consistently throughout the person's fiscal year. GST/HST Memorandum 8.3, Calculating Input Tax Credits, provides guidance on methods which may be used to allocate the use of property or a service for ITC purposes.
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 require clarification with respect to any of the issues discussed in this letter, please call me directly at 780-266-5609. 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
Industry Sector Specialist
Insurance and ITC Allocation Unit
Excise and GST/HST Rulings Directorate
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