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: 139653
November 9, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
- Applicability of Part I tax on insurance policies [...]
Thank you for your [...] [enquiry] of October 21, 2011 concerning the application of the excise tax to a particular group of premiums paid on insurance policies acquired by your above client.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
INTERPRETATION REQUESTED
Based on your correspondence and our several telephone conversations, our understanding of the facts is described below.
Your client, [...] ([Company A]), utilizes your insurance brokerage services, together with those of [...] ([Company B]) in [...] [City 1], for its insurance coverage placements in Canada. Correspondence you supplied to our office confirms [...] [Company C] is [Company A's] Broker of Record, and that [Company C] works in conjunction with [Company B], to place insurance adequate for [Company A's] needs.
Several years ago [Company A] became a wholly owned subsidiary of an American parent company. For purposes of the excise tax application, it remains a Canadian corporation, with operations conducted and assets located in Canada.
For [Company A's] current insurance requirements, [Company C] obtained coverage through several Canadian insurance companies. It then invoiced [Company A] and collected payment of those premiums, as confirmed through documents submitted to our office. [Company C] then remitted payments to the insurance companies providing the different types of coverage. At the time [Company C] did not include any of those policies in its B241 return to our Summerside Tax Centre, for it did not consider them reportable.
During the latest annual filing season for excise tax on insurance, [Company B] included particulars of those same insurance policies obtained by [Company C] for [Company A] in the annual B241 return it submitted to our Summerside Tax Centre. This reporting caused an insurance account to be opened for and remittance forms mailed to [Company A], requesting payment of the 10% excise tax on the insurance premiums reported. [Company A's] [...] returned the payment voucher to our Summerside Tax Centre with the notation that "no insurance had been purchased from non-licensed insurers or brokers outside of Canada for the period indicated. No excise tax due."
In early October [Company C] requested [Company B] to explain why [Company A] policies listed in [Company B's] return on Form B241 were included. The response received from [Company B] was: [...] [direct quote]
[Company C] then attempted to rectify the issue through our Summerside Tax Centre. Because of the different manner of handling the issue by [Company C] and [Company B], their staff directed [Company C] to contact the Excise Duties and Taxes Division for an interpretation.
INTERPRETATION GIVEN
Under the ETA, an excise tax is imposed, levied, and collected on premiums on some types of insurance, issued under certain conditions.
Subsection 4(1), Part I, of the ETA states 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,
(a) with
(i) any insurer not incorporated under the laws of Canada or of any province or not formed in Canada, or
(ii) any exchange having its chief place of business outside Canada or having a principal attorney-in-fact whose chief place of business is outside Canada,
that at the time the contract is entered into or renewed is not authorized under the laws of Canada or of any province to transact the business of insurance, or
(b) with any insurer that at the time the contract is entered into or renewed is authorized under the laws of Canada or of any province to transact the business of insurance, if the contract is entered into or renewed through a broker or agent outside Canada,
shall, on or before April 30 in each year, pay to the Minister, in addition to any other tax payable under any other 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."
The insurance coverage most recently acquired by [Company A] is on its assets in Canada, and was acquired through [Company C] from Canadian insurers, as confirmed through the several documents sent to this office. [Company B] could have participated in those placements, but documents confirm all placements were booked by [Company C] with Canadian insurers. Therefore, none of the premiums that were paid for currently in effect insurance requirements by [Company A] are taxable under the Excise Tax Act.
This interpretation applies only to the insurance coverage currently in place, as described above. Should renewals be procured and booked for [Company A] under different circumstances and conditions, we suggest that the reporting instructions in our Excise Taxes and Special Levies Memorandum 7-1 - Special Levies - Insurance Premiums are reviewed.
GENERAL INFORMATION
Please note that [...]
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 the excise tax issues discussed in this letter, please call me directly at 613-957-4136.
Yours truly,
Margaret N. Ashby, LLM
Softwood Lumber and Other Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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