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.
[Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5]
[Addressee]
Case Number: 165420r
[Dear Client:]
Subject: GST/HST INTERPRETATION
Application of GST/HST to new home warranty insurance […]
Further to […][your request] regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the issuance of home warranty insurance […] by […](the Insurer) in the provinces […] for the period […]
[…].
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Our understanding of the facts, […].
[INTERPRETATION GIVEN]:
[…], paragraph (a) of the definition of an insurance policy in subsection 123(1) includes a policy or contract of insurance (other than a warranty in respect of the quality, fitness or performance of tangible property, where the warranty is supplied to a person who acquires the property otherwise than for resale) that is issued by an insurer.
We understand that in [certain provinces], before the construction of a new home (that is, a residential unit or common property of a condominium complex or strata residential building) commences, the builder of the new home may register the new home with an insurer for the insurer to provide a new home warranty insurance policy in respect of the new home. In [some provinces], provincial legislation requires the builder to register each new home with an insurer for the insurer to issue a new home warranty insurance policy, in order to provide protection to the home owner (or condominium/strata corporation) against construction defects in the new home.
Based on the facts […], we understand that […] the Insurer enters into agreements (Builder Agreement) with builders of these new homes. Under the Builder Agreement, the Insurer agrees to provide new home warranties in the form of the Policies and the builder agrees to perform the warranty obligations of the Policies, which generally includes replacing and repairing construction defects in the new home. The primary responsibility for carrying out the warranty obligations regarding the new homes rests on the builder. The Policies are evidence to the homeowner (or condominium/strata corporation) that a warranty is provided in respect of the new home constructed by the builder.
If the builder does not perform these obligations, the Insurer is liable under the Policies to indemnify the homeowner (or condominium/strata corporation) for the repair or replacement of the defects in the residential unit or common property. Therefore, in essence, it is the warranty obligations of the builder that are insured by the Insurer as the Insurer only provides a back-up to the builder’s warranty.
In our view, the Insurer and the builder have a contract of insurance that is included in paragraph (a) of the definition of insurance policy in subsection 123(1). Further, the Insurer is making a supply of a financial service that is included in paragraph (d) of the definition of financial service in subsection 123(1), and is not excluded by any of paragraphs (n) to (t) of that definition.
The supply of the financial service by the Insurer to the builder is exempt under section 1 of Part VII of Schedule V. Therefore, the insurance premium component of the […] fee charged by the Insurer to the builder is consideration for an exempt supply of a financial service, and that amount will not be subject to GST/HST.
Furthermore, in our view although the homeowners (or condominium/strata corporations) are the beneficiaries of the Policies, there is no separate taxable supply of the Policies by the Insurer to a homeowner (or condominium/strata corporation) when the Insurer issues the Policies.
It is our understanding that Policy [#] is not issued pursuant to the Builder Agreement, or any similar agreement, and is instead issued to the insured, for consideration payable by the insured. If that is the case, it is included in paragraph (a) of the definition of insurance policy and the Insurer is providing an exempt supply of a financial service to the insured. If there is an agreement between the Insurer and the renovator similar to the Builder Agreement (this was not considered as none were submitted for our review), there is probably an insurance contract between the Insurer and the renovator whereby the Insurer is making an exempt supply of a financial service. Note that we have never considered an agreement between an insurer and a renovator for this type of policy, and we would need to review one to determine with certainty how the provisions of the ETA apply.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.]
If you have further questions or require clarification on the above information, please contact me at 780-266-5609.
Yours truly,
Eleanor Struth
Insurance and ITC Allocation Unit
Financial Institutions and Real property Division
Excise and GST/HST Rulings Directorate
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