14 December 1998 External T.I. 9820255 - TAXATION OF REINSURANCE BUSINESS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: How reinsurance is treated in terms of federal income tax in Canada for resident and non-resident insurers.

Position: General description of taxation of insurers under the Income Tax Act.

Reasons: The Act does not distinguish between insurers and reinsurers.

XXXXXXXXXX 								982025
									Michèle Trotier
December 14, 1998

Dear XXXXXXXXXX:

Re: Reinsurance

This is in reply to your facsimile of July 31, 1998 wherein you requested how reinsurance is treated in terms of federal income tax in Canada for resident and non-resident reinsurers.

In Canada, insurers including corporations without share capital such as mutual insurance companies which carry on an insurance business in Canada are subject to federal tax under the Income Tax Act (“Act”). They are also subject to tax under the various provincial tax statutes. The Act provides for specific rules with respect to life and non-life insurers. The tax provisions of the Act, which cover both income and capital tax, apply to resident life and non-life insurers. Where a life insurer resident in Canada carries on an insurance business in Canada and in a country other than Canada the Act provides that the income from the insurance business carried on in a country other than Canada is not subject to tax in Canada. The Act also applies to non-resident insurers which are carrying on an insurance business in Canada. A non-resident insurer which also carries on an insurance business outside of Canada will not be subject to tax in Canada on the income generated from that insurance business carried on outside of Canada.

Canada has entered into international tax treaties with a number of countries. Generally, when a non-resident insurer is from a country with which Canada has entered into such a treaty it has to be determined that the non-resident insurer has a permanent establishment in Canada in order for the Act to apply with respect to its insurance business carried on in Canada.

The Act does not distinguish between insurers and reinsurers. They are both subject to the same provisions except when dealing with reinsurance commissions. The Act also provides for an adjustment to be made to the reserves which can be claimed by the ceding insurer since the reserves are to be computed net of reinsurance ceded. In general, the reserves which can be claimed by the reinsurers will basically follow the same basis as for the ceding insurers.

We hope that the above comments will be of assistance. If you have specific questions with respect to the taxation of insurance corporations in Canada do not hesitate to contact us.

Yours truly,

F. Lee Workman
Section Manager
Financial Institutions Section
Financial Industries Division
Policy and Legislation Branch