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 Specialty Tax Directorate
5th floor, Place de Ville, 320 Queen Street
Ottawa ON K1A 0L5
[Client addressee]
Case Number: 9000266
Attention: [Client]
July 16, 2024
Dear: [Client]
Subject: INTERPRETATION - Tax on Insurance Premiums Under Part I of the Excise Tax Act
Thank you for your letter of November 24, 2023 concerning the application of the tax on
insurance premiums under Part I of the Excise Tax Act (ETA). We apologize for the delay in our response.
All legislative references are to the ETA and the regulations therein, unless otherwise specified.
INTERPRETATION REQUESTED
You would like to know if extended product warranties are generally considered to be a form of “contract of insurance” that are subject to the tax on insurance premiums under subsection 4(1) of the ETA, and under what circumstances an extended product warranty would constitute a “contract of insurance.”
Further, you would like to know whether corporations that solely offer extended product warranties on goods they manufacture are “incorporated for the purpose of carrying on the business of insurance” and thus meet the definition of “insurer” under section 3 of the ETA.
INTERPRETATION GIVEN
Under paragraph 4(1)(a) of the ETA, the tax on insurance premiums applies where a person resident in Canada enters into a "contract of insurance" against a risk ordinarily within Canada with an "insurer" that is not formed or incorporated in Canada and that is not authorized under Canadian law to transact the business of insurance.
Section 3 of the ETA defines an “insurer” to mean “any corporation incorporated for the purpose of carrying on the business of insurance, any association of persons formed on the plan known as Lloyds whereby each associate underwriter becomes liable for a stated, limited or proportionate part of the whole amount insured under a contract of insurance, and any exchange.”
In general, the CRA is of the view that extended product warranties are not a form of "contract of insurance" subject to the tax under Part I of the ETA. For that reason, corporations that solely offer extended product warranties on goods they manufacture are not generally regarded as corporations "incorporated for the purpose of carrying on the business of insurance" as contemplated by the definition of "insurer" under the ETA.
However, the CRA is not precluded from determining that a particular extended product warranty is subject to the tax under Part I of the ETA, if the specific set of facts establishes that the warranty is characteristic of a "contract of insurance" and the corporation is carrying on a "business of insurance."
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.
For further information go to Canada.ca and search for “Requesting an Excise and Specialty Tax Ruling or Interpretation.”
If you require clarification with respect to any of the issues discussed in this letter, please contact Jefe Olagunju directly at 343-572-2268.
Sincerely,
Yannic Laroche
Yannic Laroche
Manager
Excise Taxes and Other Levies Unit
Excise Tax and Fuel Charge Division
Excise and Specialty Tax Directorate
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