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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 133288
December 9, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Excise Tax - Insurance - Related Party Transaction [Purchase of insurance by a United States company for a related Canadian company]
Thank you for your letter of March 2, 2011 concerning the application of the Excise Tax Act to insurance purchased by a parent company on behalf of the Canadian subsidiary. We apologize for the delay in responding to your question.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
We understand that your company has recently changed your insurance policy to a North American policy. The insurance was purchased by a related company in the United States [US] and your company, a related Canadian company, was charged via an intercompany transaction for the premiums paid.
Interpretation Requested
You would like to know whether the 10% excise tax applies to the premiums paid via intercompany transaction to your related US Company for insurance purchased in the United States. You would also like to know if you have to file an excise tax return.
Statement of Facts
1. The US related company purchases insurance for a related Canadian company.
2. The US Company is related to the Canadian company through their [United Kingdom] UK parent company.
3. The US Company purchases insurance from a US insurer.
4. The Canadian company is charged via an intercompany transaction for the premiums paid for the insurance.
Interpretation Given
Subsection 4(1) of the Excise Tax Act provides that every person resident in Canada by whom or on whose behalf a contract of insurance, other than a contract of reinsurance, is entered into or renewed against a risk ordinarily within Canada at the time the contract is entered into or renewed with any insurer not incorporated under the laws of Canada or of any province or not formed in Canada, ... shall on or before April 30 in each year, pay to the Minister, in addition to any other tax payable under the law, a tax of ten per cent on the net premiums paid or payable during the immediately preceding calendar year in respect of that insurance.
Based on the information provided, the premiums paid to the US Company for an insurance contract made on behalf of the Canadian company is subject to the excise tax imposed under subsection 4(1) of the Excise Tax Act.
Pursuant to subsection 5(1) an excise tax return is required to be filed by the Canadian subsidiary on or before April 30 for premiums paid in the immediately preceding calendar year in respect of that insurance.
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) 954-6720.
Yours truly,
Sharon Kendall
Softwood Lumber and Other Taxes Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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