Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 56283
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Subject:
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TAX APPLICATION RULING
PART I TAX ON INSURANCE PREMIUMS
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Dear XXXXX:
Thank you for your fax XXXXX requesting confirmation of the application of the Excise Tax on Insurance Premiums to the following transaction(s) XXXXX. XXXXX the XXXXX Tax Services Office had previously forwarded supporting documents to us. I apologize for the delay in responding.
Statement of Facts
Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:
1. Your query involves the application of the tax to premiums (Inland Transit and Ocean Cargo) and related engineering, fronting and broker fees paid by XXXXX when acquiring Comprehensive and Property All Risks insurance, pursuant to your XXXXX.
2. For purposes of this query, the relevant provisions in this policy are XXXXX. XXXXX addresses Inland Transit coverage, and XXXXX covers Ocean Cargo coverage.
3. The Inland Transit and Ocean Cargo premiums deal with risk premium insurance. The Inland Transit premium is in respect of "cargo transferred within land", and the Ocean Cargo premium is in respect of "cargo transferred overseas".
4. As XXXXX indicated to me, the related engineering, fronting and broker fees are not separated from the Inland Transit and Ocean Cargo premiums when determining the total premium. XXXXX totals these premiums and fees together when determining its total amount payable for this insurance policy. The premiums and fees form a single supply for the Comprehensive and Property All Risks insurance in question.
5. XXXXX brokers the global property program and charges a broker fee for this service.
With respect to the XXXXX and XXXXX debit memos from XXXXX parent company, XXXXX was charged with an allocation of the insurance premiums and fees for these XXXXX fiscal periods.
Ruling Requested
Are these premiums and fees subject to the 10% Excise Tax on Insurance Premiums?
Ruling Given
The insurance policy in question is not a policy against marine risks. Nor is it a policy covering any other class of insurance specifically exempted under subsection 4(2) of the Excise Tax Act (ETA). The legislative definition of "net premiums" does not provide for deleting elements from the gross premiums. Therefore, the Inland Transit and Ocean Cargo premiums and the related engineering, fronting and broker fees each comprise part of the net premium for a single supply of insurance that is taxable under Part I of the ETA. Based on the facts presented, we rule that these amounts are subject to the 10% Excise Tax on Insurance Premiums.
Legislation
Subsection 4(1) of the ETA states:
"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."
Subsection 4(2) of the ETA exempts contracts of life insurance, personal accident insurance, sickness insurance and insurance against marine risks.
Explanation
For the marine risks exemption to apply, a two-fold test must be satisfied. First, there must be a contract for marine insurance. Second, at least part of the freight transportation, from origin to destination, must be over navigable waters. The transportation must not have any planned breaks. This exemption includes all risks associated with the transit from the point of origin to destination, including any land transportation and temporary storage en route and its associated risks. If XXXXX were to ship XXXXX via highway or rail from a point in XXXXX to a point in Canada, our position is that the insurance contract would not be against marine risks. However, a contract for marine insurance, which covers an oceanic voyage with no planned breaks in its journey, would be considered insurance against marine risks.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under objection or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.
Should you have any further questions or require clarification on the above matter, feel free to call me at (613) 957-9877.
Yours truly,
Michael Moskovic
Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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