GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
|
XXXXX
|
M. Guerra
Case : HQR0001028
XXXXX File : 6
|
Dear XXXXX
Thank you for your letter of January 08, 1998, with attachments, concerning the application of the Goods and Services Tax (GST)Harmonized Sales Tax (HST) to XXXXX[.]
Our understanding is that there are two agreements. One is between XXXXX and XXXXX and the other is between XXXXX and XXXXX
The following facts with respect to the agreement between XXXXX and XXXXX are from your draft reply:
XXXXX has agreed to insure certain defects in materials and workmanship of products sold by XXXXX enrolls customers who want coverage, receives and accounts for premiums collected from the customers and remits the net premium (i.e. premium charged by XXXXX to customer less compensation to XXXXX to XXXXX collects and remits the GST on the premium and remits this GST to the Receiver General XXXXX provides XXXXX with necessary information to enable XXXXX to process and administer claims XXXXX issues a master mechanical breakdown insurance policy, administers and pays claims and issues certificates of insurance to the customers
The following facts are with respect to the agreement between XXXXX and XXXXX
XXXXX has entered into a XXXXX with XXXXX to provide mechanical breakdown insurance to XXXXX customers on appliances and electronic products purchased by the customers from XXXXX
• The master policyholder is XXXXX and the insured is the customer. XXXXX is the insurer and underwriter. The XXXXX is issued to the customer by XXXXX In consideration of a premium, XXXXX agrees to furnish partsservice. The entire agreement between XXXXX and the insured is contained in th XXXXX
• The XXXXX may be transferred on payment to XXXXX of a XXXXX fee. The customer can write to XXXXX and request cancellation of the XXXXX in which case, the customer is entitled to a refund of unearned premium.
• XXXXX pays XXXXX the premium charged to the customer less administrative and collection fees.
XXXXX collects the premium plus 7% GST from the customer and remits this amount less its commission plus GST to XXXXX on a monthly basis. XXXXX sends XXXXX a weekly report of claims payable. This report lists all invoices XXXXX received for repairs performed during the period. XXXXX pays the amount (which includes GST) shown on the report to either the repairer or the individual customer.
Interpretation Requested
You have requested our comments with respect to whether XXXXX can be considered a beneficiary for purposes of section 175.1 of the Excise Tax Act (ETA), and whether the supplies from XXXXX to XXXXX and XXXXX can be considered insurance since XXXXX and XXXXX are policyholders.
Our Comments
Based on the information provided we conclude that XXXXX cannot be considered to be a beneficiary for purposes of section 175.1 of the ETA. Section 175.1 states, in part, "where (a) the beneficiary of a warranty (other than an insurance policy) in respect of the quality, fitness or performance of tangible property acquires or imports property or a service or brings it into a participating province and tax is payable by the beneficiary in respect of the acquisition, importation or bringing in...". The explanatory notes specify that this section enables a warrantor to claim an input tax credit in respect of the tax portion of a reimbursement made to the warranty holder (i.e., beneficiary) for the cost of property or services, such as repairs provided under the terms of a warranty, supplied to the beneficiary by a third party. It is clear from the certificate of insurance and the other documents provided, that the holder of the warranty is the customer and not XXXXX, consequently, it is the customer and not XXXXX who is considered to be the beneficiary for purposes of this section.
Since you have already concluded that XXXXX is making supplies of extended warranties directly to the customer, we consider that there is no supply being made from XXXXX to XXXXX and from XXXXX to XXXXX. Consequently, there are no supplies of insurance being made from XXXXX to either XXXXX or XXXXX
Paragraph 123(1)(a) defines "recipient" of a supply, in part, as "where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration". The fact that XXXXX and XXXXX are the policyholders, i.e., the person defining the group, does not mean they are the recipients of the supply. The recipients are still considered to be the customers since they are the persons liable to pay the premium under both policy agreements.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 9577 or Duncan Jones at (613) 9210.
Yours truly,
Marilena Guerra,
C.M.A. Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch
Email this Content