14 January 2003 GST/HST Interpretation 43454 - Zero-rated Financial Services

Further to our telephone conversation XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX XXXXX we trust that the following comments will assist you with your audit

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX issued a XXXXX ("insurance policies") to Canadian residents. The premiums relating to these policies were included in the computation of income for income tax purposes.

2. The individuals insured under these insurance policies have since left Canada. XXXXX has classified the premiums received as consideration for the supply of an exported financial service. XXXXX has claimed additional Input Tax Credits ("ITCs") on expenses relating to these premiums.

3. The quantum of exported services is derived from the XXXXX for the year. The XXXXX on the XXXXX represents premiums received from non-residents. The net premiums and annuities, less dividends results in the quantum of exported services for the year. This total is applied against the GST incurred to determine the ITCs for the year. The ITCs claimed for XXXXX.

4. As we have not had the opportunity to review the individual policies, we trust that you are satisfied that the premiums included in the XXXXX on the XXXXX represents policies insuring "non-residents" risks.

Issue

Are the services provided by XXXXX relating to the maintenance of "non-resident" risks zero-rated under section 1 of Part IX of Schedule VI to the Excise Tax Act ("ETA")?

Our Comments

1. Our comments assume that the GST paid by XXXXX is not directly attributable to any particular supply. With respect to GST paid and the calculation of ITCs it is our view that any GST paid that can be directly attributed to exempt supplies should be taken out of the pool for ITC purposes.

2. The "financial services" provided by XXXXX relate to the maintenance of "non-resident" risks. Therefore, these "financial services" constitute zero-rated supplies under section 1 of Part IX of Schedule VI to the ETA.