Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 86502
Attention: XXXXX
November 27, 2008
Dear XXXXX:
Subject:
_Excise Interpretation
Excise Tax on Insurance Premiums
This letter is in response to your XXXXX correspondence dated XXXXX, and subsequent communications concerning the application of Part 1, paragraph 4(1)(b) of the Excise Tax Act.
All legislative references are to the Excise Tax Act (the Act) and the regulations therein, unless otherwise specified.
We understand that your applications for exemption from insurance premium tax imposed under Part 1 of the Act were denied for the taxation years XXXXX, XXXXX, XXXXX, as letters of declination to support the exemptions were not provided. Subsequent to your original correspondence you have provided us with documentation for analysis in support of the exemptions.
Interpretation Requested
You would like to know if aviation insurance coverage purchased by a U.S. based parent company on behalf of a Canadian based subsidiary company is subject to the 10% excise tax pursuant to paragraph 4(1)(b) of the Act.
Furthermore, you asked that we re-evaluate your applications for exemption for the taxation years XXXXX, XXXXX, XXXXX, which were originally denied as letters of declination to support the exemptions were not provided at that time.
Interpretation Given
Subsection 4(1) of the Act provides for the imposition of excise tax on premiums in respect of insurance entered into or renewed through a broker or agent outside Canada.
Paragraph 4(2)(b) of the Excise Tax Act (the Act) provides that subsection 4(1) of the Act does not apply to "any other contract of insurance entered into after February 19, 1973 to the extent that the insurance is not, in the opinion of the Commissioner, available within Canada".
Where a contract of insurance would normally be subject to the 10% premium tax but is not available in Canada, an application for exemption may be made using form E638, Application for Exemption From Premium Taxes Imposed Under the Excise Tax Act - Part 1 outlining the type of insurance purchased and the reasons it could not be obtained in Canada. The only acceptable criteria for exemption are: the particular class of insurance was not available from authorized insurers, or the lack of market capacity at that particular time for that class of insurance.
Our analysis of the documentation provided by you for the Tax Years XXXXX and XXXXX indicates that 'aviation product' related insurance coverage is arranged by the US Parent Company, with insurance for XXXXX, being one of many components. It is also clearly stated that due to the international nature of the program that Canadian insurers are not approached as part of the overall strategy.
The information provided for the Tax Year XXXXX indicates that a number of insurers were approached but they refused to provide quotes or coverage. However, it is not apparent from the correspondence whether their participation was sought solely for the Canadian component or for the global policies. Furthermore, no clear reasons for declination were provided by the insurance companies.
Based on the information provided, it is not apparent that the insurance was not available within Canada, or that there was insufficient market capacity at that time for that class of insurance. Therefore, the aviation insurance coverage purchased by the U.S. based parent company on behalf of its Canadian based subsidiary company is subject to the 10% excise tax pursuant to paragraph 4(1)(b) of the Act.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to paragraph 4(1)(b), regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-6720.
Yours truly,
Sharon Kendall
Excise Taxes and Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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