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: 127349
March 16, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Insurance Premiums
Thank you for your fax of August 17, 2010 concerning the general application of Part I of the Excise Tax Act on insurance premiums.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
Interpretation Requested
You would like to know how Part I of the Excise Tax Act applies to insurance premiums in general, especially when U.S. insurance companies or U.S. brokers are involved in the transaction.
Interpretation Given
Based on the information provided, we have the following comments.
In general terms, Part I of the Excise Tax Act imposes a 10% tax on insurance premiums against a risk in Canada placed with "authorized" insurers through brokers or agents outside Canada or placed with "unauthorized" insurers.
An authorized insurer is an insurer who is registered or authorized under the laws of Canada or of any province to transact the business of insurance.
An unauthorized insurer is an insurer who is not authorized under the laws of Canada or of any province to transact the business of insurance.
The tax imposed by subsection 4(1) of the Excise Tax Act does not apply to the following contracts of insurance:
(a) Contracts of life insurance, personal accident insurance, sickness insurance and insurance against marine risks are exempt from tax.
(b) Contracts of insurance against nuclear risks to the extent that such insurance against nuclear risks is not, in the opinion of the Commissioner, available in Canada. This type of insurance is not subject to tax provided evidence has been submitted, which is satisfactory to the Canada Revenue Agency (CRA), that such insurance is not available in Canada.
(c) Any contract of insurance which is not, in the opinion of the Commissioner, available in 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.
In addition, to support the fact that the insurance coverage is not available in Canada, the person applying for the exemption must complete the back of the form to include a list of five authorized Canadian insurers that declined coverage by providing a completed form E638A, Statement of Availability or Declination from Authorized Insurers - Tax on Insurance Premiums (Part I of the Excise Tax Act) and/or a declination letter. These forms or letters must include sufficient details to support why coverage was declined.
The only reasons the CRA considers acceptable 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.
With respect to your specific questions, we provide the following responses:
1) Your interpretation is correct. Assuming that the insurer is not authorized and/or the broker is outside Canada, the 10% tax would apply unless it falls under one of the exceptions listed in subsection 4(1). In the case of insurance not available in Canada, the insured must file an exemption application as mentioned above.
2) The 10% tax of Part I does not apply to the contracts of insurance listed in points a to c above. Therefore, nuclear insurance would be subject to the 10% tax under Part I if it were available in Canada.
3) Subsection 4(4) states that "where a contract of insurance is entered into or renewed through more than one broker or agent, or where payment of the premium or any part of the premium thereon is effected through more than one broker or agent, the contract shall, ..., be deemed to have been entered into or renewed, as the case may be, through the broker or agent directly retained or instructed by the insured and not through any other broker or agent."
If the local (Canadian) broker gets his instructions from the U.S. broker, the U.S. broker is therefore deemed to be the broker through whom the contract is made and the 10% tax would apply.
4) Not enough information is provided in this question. The fact that a Canadian broker places insurance locally with an authorized insurer does not necessarily mean that the premiums are not taxable. It has to be clear that the Canadian broker is the broker directly retained or instructed by the insured if other non Canadian brokers are involved.
We would like to point out that the 10% tax applies to brokerage fees and/or administration fees if they relate to the issuance of insurance coverage, whether the fees are shown separately from the policy or not.
5) Your interpretation is correct. It is likely that the U.S. broker is deemed to be the broker through whom the contract is made and the 10% tax would apply.
6) Correct, it is a question of fact which broker is actually directly retained or instructed by the insured. All facts would have to be considered but it is likely that the U.S. broker would be deemed to be the broker through whom the contract is made.
7) Correct, as long as no foreign broker is involved.
8) Correct, as long as no foreign broker is involved.
9) Correct, the domestic broker must be directly retained or instructed by the insured and not through any other broker or agent.
To answer your last question, it is a question of fact which broker would be deemed to be the broker directly retained or instructed by the insured. All facts would have to be reviewed in order to make that determination.
We have attached a copy of our publication X7.1, Special Levies - Insurance Premiums for your information.
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 the Excise Tax Act, 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 613-957-4138.
Yours truly,
Nathalie Robitaille
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content