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 Duties and Taxes Division
Place de Ville, Tower A, 20th floor,
320 Queen Street
Ottawa, ON K1A 0L5
Case Number: 134951
October 20, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
[Insurance premiums other than marine]
Thank you for your [...] enquiry of May 3, 2011 concerning the general application of Part I of the Excise Tax Act (ETA) on insurance premiums other than marine.
All legislative references are to the ETA and the regulations therein, unless otherwise specified.
Statement of Facts
From your email and a subsequent phone conversation the following facts have been summarized:
1. Your client is a corporation who invests in shares of producing oil and gas wells in [...] but has no other operations.
2. The corporation has an interest in over [...] wells of which [...] are located in Canada and [...].
3. The corporation has no physical address or location in Canada and is not engaged in business in Canada aside from the financial interest in these wells,
4. The policy for liability insurance is through a broker outside of Canada with an insurer not incorporated under the laws of Canada or of any province or formed in Canada.
5. The insurance carrier advises you that their premium is weighed more heavily on the risks located in [...] so they have not allocated any premiums to what they consider incidental exposures in Canada.
Interpretation Requested
You have asked the Canada Revenue Agency (CRA) the following questions:
1. Would your client be subject to the 10% tax on insurance premiums?
2. If so what calculation would be used to determine the premium against which the tax would be levied?
3. Would you the broker be required to file a return in accordance with ss 5(2) of the ETA as outlined in the memorandum X7.1 Special Levies-Insurance Premiums?
Interpretation Given
Based on the information provided, we provide the following response to your questions:
Your client would not be subject to the 10% tax imposed on insurance premiums under Part 1 of the ETA and you the broker would not be required to file a return.
Explanation
In general terms Part 1 of the ETA imposes a 10% tax on insurance premiums against a risk in Canada by residents of Canada placed with "authorized" insurers through brokers or agents outside Canada or placed with "unauthorized" insurers. 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.
According to subsection 4(3) of the ETA, for purposes of the tax on insurance premiums, every corporation carrying on business in Canada is deemed to be a person resident in Canada. As such, a corporation incorporated under the laws of a country other than Canada that is carrying on business in Canada may be required to pay the tax.
However for the purpose of Part 1 of the ETA your client is not considered to be a corporation carrying on business in Canada.
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 613 952 0048.
Yours sincerely,
Michael Ryder
Softwood and Other Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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