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.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 229371
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Association billing of insurance amounts to members
Thank you for your fax of July 19, 2021, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to amounts invoiced by […] (the Association) in respect of insurance. We apologize for the delay in our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your letter, sample invoice, information and documentation provided by the Association and information found on the Association’s website, we understand the relevant facts to be as follows:
[…][The Organization] and the Association
1. […][Information about the Organization]
2. The Organization is a member of the Association. The Association is a non-profit umbrella association of […][member organizations that are similar to the Organization].
3. The Association collects annual membership fees from […][each member organization including the Organization]. Benefits of membership include:
[…]
* optional directors and officers liability insurance coverage at a favorable rate.
Activities related to insurance
4. The Association has acquired the optional directors and officers liability insurance coverage (further described below) under the […](the Policy) issued by […] (the Insurer), a licensed insurer under the Insurance Companies Act of Canada.
5. […][A member organization that] wants to acquire this insurance, […] completes an enrollment form which is forwarded by the Association to the broker, […](the Broker). The Broker determines what the […] premium amount […][is for each member organization], based upon their financial information, and [their] name is added to the policy as an insured person.
6. Annually, insurance is automatically renewed. However, [a member organization] is allowed to cancel at any time. The Broker prepares a renewal letter […] with an insurance certificate in the […] name [of each insured member organization] and sends these to the Association. The Insurer invoices the Association a single gross annual premium. The Broker provides the Association with a breakdown of the gross premium […], so that the Association knows how much to invoice each [member organization].
7. The Association invoices the insurance […] separately from its invoicing of membership dues.
8. On [mm/dd/yyyy], the Association invoiced the Organization for […] an amount equal to the Organization’s share of the premium (as supplied by the Broker), and appended the Broker renewal letter and certificate to its invoice. […][On the invoice, the] Association charged […]% HST and [. . .]% […] Sales Tax […][on the Organization’s share of the insurance premium].
9. The Association is not involved in the claims process. If [an insured member organization] wishes to initiate an insurance claim, they must reach out directly to the Broker.
The Policy
10. […] of the Policy provides that, in consideration of the premium, the Insurer will indemnify the Insured for the payment of damages, fines or costs payable by an Insured Person or Insured Organization for non-indemnifiable and indemnifiable liability claims made against them.
11. An Insured Person is defined in […][the Policy] to include employees, executives and volunteers of an Insured Organization. An Insured Organization is defined in [the Policy] as a Parent Organization or any Subsidiary.
12. A Parent Organization is defined in […][the Policy] as the entity named on the Policy Declarations Page. The Policy Declaration Page lists the Association “and as per […][the Form]” as the Insured. [The] Form […] lists the Named Insureds - specifically naming the Association and each insured [member organization], including your Organization.
13. […][The Policy] provides that the Parent Organization is responsible for payment of all premiums and when there is a return or refund of premiums, the amount is paid to the Parent Organization.
RULING REQUESTED
You would like to know whether the [Organization’s share of the directors and officers liability insurance premium] that the Association invoiced to the Organization are subject to HST.
RULING GIVEN
Based on the facts set out above, we rule that the Association was not required to charge HST on the [Organization’s share of the directors and officers liability insurance premium] invoiced to the Organization.
EXPLANATION
Supplies of goods and services made in Canada are either taxable supplies or exempt supplies. Taxable supplies are supplies made in the course of a commercial activity. Exempt supplies are those that are not subject to the GST/HST and are listed in Schedule V. A supply of a membership such as the one outlined in your submission may be taxable. On the other hand, the issuance of an insurance policy in Canada by an insurer is generally an exempt supply.
Determining the supply
The Association supplies a number of benefits to its members, one of which includes optional insurance coverage under the Policy. Since there are a number of elements to the Association’s services, we must first determine whether the Policy coverage forms part of the supply of the membership or is a separate supply.
In this particular case, we view the Policy coverage as being supplied separately from the Association’s supply of a membership to your Organization. Based on the information provided, it is the Insurer that is making a supply of insurance to the Organization and the Association is making a separate supply of the membership to the Organization. The insurance is an option that can be acquired separately from the membership, and is invoiced separately. For more information on determining whether there is one or more supplies, refer to GST/HST Policy Statement P-077R2, Single and Multiple Supplies.
Tax status of supply
Although the membership may be taxable we have to look at the supply of the insurance on its own as it is a separate supply. A supply of a financial service is generally exempt.
A “financial service” is defined for GST/HST purposes to include the issuance, granting, allotment, acceptance, endorsement, renewal, processing, variation and transfer of ownership of a financial instrument. A “financial instrument” for GST/HST purposes includes an insurance policy.
An “insurance policy” is defined for GST/HST purposes to include (among other things) a policy or contract of insurance that is issued by an insurer (other than certain warranties in respect of the quality, fitness or performance of tangible property). An “insurer” is likewise defined to mean a person who is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an insurance business or under the laws of another jurisdiction to carry on in that other jurisdiction an insurance business.
The Policy described in the facts falls within the above definition of an insurance policy, and the Insurer is an insurer for GST/HST purposes. As such, the Insurer’s provision of the insurance under the Policy is an exempt supply of a financial service and the Insurer is not required to charge and collect GST/HST on the consideration (i.e., the insurance premiums).
To whom the supply is made
Since it is the Association (not the Insurer) that invoices your Organization for the Policy coverage, it must be determined to whom the Insurer is supplying insurance. For GST/HST purposes, a supply is made to a “recipient. A “recipient” of a supply means, where consideration for the supply (e.g., the insurance premium) is payable under an agreement for the supply (e.g., the Policy), the person who is liable under the agreement to pay that consideration. In this case, the Organization is a Named Insured in [the Form] of the Policy and so is a Parent Organization who is liable under the Policy to pay the insurance premiums to the Insurer. Therefore, the Organization is a recipient of the supply of the insurance provided by the Insurer – or put another way, the Insurer is making an exempt supply of a financial service to the Organization. This means that the Insurer is not required to collect HST on the insurance premiums payable by your Organization.
When the Association invoices your Organization for the […] insurance premiums that are payable by your Organization to the Insurer, the Association is merely collecting and remitting the premiums on your Organization’s behalf, and so is also not required to charge HST on that amount. The Association is not making a separate supply to your Organization when doing so, and the insurance is not part of the supply of the membership supplied by the Association.
Tax collected in error
A person who has charged or collected from another person an amount of tax in error, may refund or credit the amount of tax to the other person within two years after the day the amount was collected. Alternatively, a person who has paid an amount of tax in error (for example, the recipient of the supply) may apply to the CRA for a rebate under section 261 within two years after the day the amount was paid. Please refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act for further discussion.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 236-330-8100. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Frankie Fenton
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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