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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 141667
February 23, 2012
Dear [Client]:
Subject:
EXCISE INTERPRETATION
[Application of 10%] Part I Tax on Insurance Premiums [Other than Marine]
Thank you for your letter of November 21, 2011 concerning the application of [10%] Part I, Insurance Premiums Other than Marine of the Excise Tax Act (ETA).
All legislative references are to the ETA and the regulations therein, unless otherwise specified.
Statement of Facts
Based on your letter as well as several phone conversations and emails exchanged with personnel from [...]([...][Company A]), we summarize our understanding of your facts presented:
[Company A] has sold a form of insurance named new home warranty insurance since [yyyy], with [...][Company B] underwriting the contracts of insurance. In excess of [#] new home warranty insurance policies have [been] written through [Company B] prior to [yyyy].
The particular [...] at [Company B], due to some significant claim losses [...][outside Canada], have decided not to write new home warranty insurance anywhere in the world.
After learning that [Company B] was withdrawing from this type of insurance, [Company A] began searching for alternatives and to date have only received agreement from an insurer named [...][Company C] to underwrite this insurance. [Company C] is not licensed or authorized anywhere in Canada to underwrite this insurance.
The domestic market for new home warranty insurance is not well developed. Currently there are [...] insurers in this market place; [...].
There are a number of insurers that have left the market place such as [...].
Due to the type of insurance, the market place, and history; once an insurer contracts with a broker to sell new home warranty insurance, that insurer does not entertain dealing with other competing brokers.
[...].
Interpretation Requested
You are requesting exemption from the 10% tax on net insurance premiums of insurance contracts placed with insurers not licensed or authorized under the laws of Canada or of any province to transact the business of insurance.
Interpretation Given
Subsection 4(2) of the ETA exempts the following types of insurance from the tax:
• any contract of life insurance;
• personal accident insurance;
• sickness insurance;
• insurance against marine risk;
• insurance against nuclear risk to the extent that the insurance is not in the opinion of the Commissioner available in Canada; or
• 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.
Excise Taxes and Special Levies Memorandum X7.1 Special Levies - Insurance Premiums; paragraph 13 explains that;
The CRA will consider only the following two reasons as acceptable for granting an exemption:
• the particular class of insurance was not available from the authorized insurers; or
• there was a lack of market capacity at that particular time for that class of insurance.
Based on the information provided, it is not apparent that the insurance is not available within Canada, or that there is insufficient market capacity for this class of insurance. Accordingly, we are unable to exclude from the Part I tax, policies issued from unlicensed insurers.
We appreciate your explanation of the business model that [Company A] and this type of insurance operates within, however that said, it is clearly indicated that there are insurers in the market and there is insufficient documentation to indicate the insurance is not available or that there is a lack of market capacity.
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 Part I of the ETA, 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) 952 0048.
Yours truly,
Michael Ryder
Softwood Lumber and Other Taxes Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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