28 June 2010 External T.I. 2009-0342671E5 - Paragraph 149(1)(t) - non-resident insurers

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Whether the exemption from Part I tax under paragraph 149(1)(t) of the Act applies to a non-resident insurer; (2) If so, in applying paragraph 149(1)(t), subsection 149(4.1) and subsection 149(4.2) of the Act to the Canadian branch of a non-resident insurer, whether the activities of the Canadian branch or the activities of the non-resident insurer as a whole should be considered.

Position: (1) Yes; (2) The gross premium income from the activities of the non-resident insurer as a whole should be considered.

Reasons: Wording of the legislation.

XXXXXXXXXX
									2009-034267
June 28, 2010

Dear XXXXXXXXXX :

Re: Application of Paragraph 149(1)(t) to Non-resident Insurers

This is in reply to your letter dated September 28, 2009, requesting our views as to whether the exemption from Part I tax under paragraph 149(1)(t) of the Income Tax Act (the "Act") is available to a non-resident insurer and, if so, in applying paragraph 149(1)(t) and subsections 149(4.1) and (4.2) of the Act to the Canadian branch of a non-resident insurer, whether the activities of the Canadian branch or the activities of the non-resident insurer as a whole should be considered.

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

Paragraph 149(1)(t) of the Act provides an exemption from Part I tax on the taxable income of an insurer that relates to the insurance of property used in farming or fishing or residences of farmers or fishermen ("farming or fishing risks") where not less than 20% of the insurer's gross premium income (net of reinsurance ceded) earned by the insurer and, where applicable, by certain other insurers, is in respect of farming or fishing risks. There is no requirement that the insurer must be resident in Canada in order to qualify for the exemption under paragraph 149(1)(t) of the Act. Accordingly, it is our view that an insurer, whether resident in Canada or not, will qualify for the Part I tax exemption under paragraph 149(1)(t) of the Act provided the insurer meets the conditions contained therein.

Subsections 149(4.1) and (4.2) of the Act set out the extent of the Part I tax exemption under paragraph 149(1)(t) of the Act. In general, subsection 149(4.1) of the Act provides a formula to limit the exemption based on a ratio of gross premium income (net of reinsurance ceded) earned in the year from the insurance of farming or fishing risks to total gross premium income (net of reinsurance ceded) earned in the year. Subsection 149(4.2) of the Act provides an exemption from Part I tax on all of the insurer's taxable income for the year (and not just a portion of such income) if more than 90% of the total of the gross premium income (net of reinsurance ceded) earned in the year is in respect of the farming or fishing risks.

You have asked us to clarify whether only the activities of the Canadian branch should be considered in applying the threshold tests in paragraph 149(1)(t) and subsection 149(4.2) of the Act and the formula in subsection 149.1(4.1) of the Act. We note that these provisions refer to "gross premium income". There is nothing in the relevant legislation that indicates that the premiums to be used for these purposes should be limited to premiums in respect of the Canadian insurance business.

In order for a Canadian resident insurer to qualify for the exemption from Part I tax pursuant to paragraph 149(1)(t) of the Act, the combined gross premium income from all forms of insurance sold by the Canadian resident insurer and by certain other insurers would be considered. Consistent with the treatment provided to domestic insurers and in accordance with the wording of the relevant legislation, it is our view that the gross premium income from the activities of the non-resident insurer as a whole (rather than just the activities of the Canadian branch) should be considered in applying the threshold tests and the formula in paragraph 149(1)(t) and subsections 149(4.2) and 149(4.1) of the Act.

While we trust that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Jenie Leigh
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch