Excise Tax Act – Part I

Reporting requirements regarding insurance placed with unauthorized insurers or with authorized insurers through brokers or agents outside Canada

When does Part I tax apply to insurance premiums?

Description of Tax

Part I of the Excise Tax Act imposes a 10% tax on insurance premiums for persons resident in Canada, including corporations, who place insurance against risks in this country with insurers not incorporated under the laws of Canada or of any province or not formed in Canada or with any exchange having its chief place of business outside Canada or having a principal attorney-in-fact whose chief place of business is outside Canada where the insurer or exchange is not authorized under laws of Canada or the laws of any province to transact the business of insurance.

The 10% tax is also applicable if persons resident in Canada, including corporations, place insurance against risks in this country with insurers, including any exchange, authorized under the laws of Canada or the laws of any province to transact the business of insurance, if the contract is entered into or renewed through a broker or agent outside Canada.

What insurance is exempt from Part I tax?

The 10% tax imposed under Part I of the Excise Tax Act does not apply to the following contracts of insurance:

• life insurance
• personal accident insurance
• sickness insurance
• insurance against marine risks

Who has to pay the tax?

Canadian residents, including corporations, that have purchased taxable insurance must file Form B243, Excise Tax Return – Insured, and account for a 10% tax on each taxable premium.

The client or insured person has to complete Form B243 even if a broker or agent has paid the tax on his or her behalf.

The 10% tax is due to the Canada Revenue Agency (CRA) on or before April 30 each year for taxable contracts of insurance entered into or renewed during the immediately preceding calendar year.

Information required from brokers and agents

Pursuant to subsection 5(2) of the Excise Tax Act, brokers or agents who obtain, effect or place or assist in obtaining, effecting or placing any contract of insurance that is subject to the tax are required to report in a return filed with the Minister the name and address of the person on whose behalf the contract was entered into or renewed, the amount of net premiums paid or payable with respect to the contract, the account number of insured and the risk or type of taxable policy that the insured has purchased. The CRA will be confirming the availability of various classes of insurance within the Canadian market. Ensure the policy numbers are reported on Form B241, rather than binder numbers. The return is required to be filed not later than March 15th, each year with respect to contracts of insurance entered into or renewed during the immediately preceding calendar year. If the return is mailed to the CRA, the return must be postmarked on or before March 15.

When the contract of insurance is entered into or renewed through more than one broker or agent, or when the payment of the premium or any part of it is effected through more than one broker or agent, the contract is deemed to have been entered into or renewed through the broker or agent directly retained or instructed by the insured and not through any other broker or agent.

If you have obtained, effected or placed or assisted in obtaining, effecting or placing any contract of insurance that is subject to the tax, please complete the Excise Tax Return – Broker (B241) and mail to the Canada Revenue Agency (See mailing and contact information).

Information required from Insurers

Pursuant to subsection 5(3) of the Excise Tax Act, any insurer, including an exchange, that enters into or renews a contract of insurance that is subject to the tax is required to report in a return filed with the Minister the name and address of each person, resident of Canada, with whom or on whose behalf the contract was entered into or renewed, the amount of the net premiums paid or payable during the immediately preceding calendar year with respect to the contract, the name and address of the broker or agent outside Canada through whom the contract was entered into or renewed, the account number of insured (if available), and the risk or type of taxable policy that the insured has purchased. The CRA will be confirming the availability of various classes of insurance within the Canadian market. Contracts of insurance against nuclear risk and any other contracts of insurance that are not, in the opinion of the Commissioner, available in Canada, must still be reported to the CRA. In these situations, an application for exemption must be made. For more information, see “Applying for an exemption from the tax on insurance.” The return is required to be filed not later than March 15, each year with respect to contracts of insurance entered into or renewed during the immediately preceding calendar year. If the return is sent by mail to the CRA, the return must be postmarked on or before March 15.

If you have entered into or renewed any contract of insurance that is subject to the tax, please complete the Excise Tax Return – Broker (B241) and mail to the Canada Revenue Agency (See mailing and contact information).

Information required from insured person

Include the following information on Form B243 by April 30 each year following the year in which your insurance premiums were paid or payable:

• your CRA Account Number, if you have one; and
• policy numbers, rather than binder numbers.

Contracts of life insurance, personal accident insurance, sickness insurance, and insurance against marine risks are not subject to the 10% tax. Do not report these contracts of insurance on Form B243.

Policies to be reported

A contract is considered to be entered into or renewed on the effective date of the contract unless the contract provides that the premiums are payable on a date other than the effective date. In this case, for purposes of filing your return, the contract is considered to be entered into or renewed on the premium payable date.

Therefore, if the date on which the contract is entered into or renewed occurs in the calendar year indicated on the enclosed information return or premiums are payable in the particular calendar year, the policy should be reported in this return.

Due date for tax payable

The insured’s tax return and tax payment are to be filed and remitted on or before April 30 of the year immediately succeeding the year the contract of insurance was entered into or renewed. The Canada Revenue Agency mails tax returns to the insured based on the information reported on the enclosed return.

Nil returns

If you have not placed insurance that is subject to the tax, indicate so by checking the appropriate box under “Details of insurance.”

Exception for “Special Brokers” in Québec

The Act Respecting the Distribution of Financial Products and Services of the province of Québec provides for issuing special certificates to damage insurance brokers that authorize them to place insurance with insurers not licensed in Québec. The Act Respecting Insurance of the province of Québec provides that insurers that have no business office in Québec may nevertheless issue insurance contracts there without a licence, provided they are issued through the “special brokers” and without any advertising or publicity.

Where contracts of insurance are validly placed with unlicensed insurers under the above conditions, the insurer can be considered authorized to transact the business of insurance in the context of Part I of the Excise Tax Act. As a result, the insured would not be liable for the 10% tax on premiums described in section 4 of the Excise Tax Act.

If you hold a certificate as a special broker in Québec and have validly placed insurance with unauthorized insurers, indicate so by checking the appropriate box under “Details of Insurance.” In this case, do not provide names, addresses or net premiums for the insured parties.

Applying for an exemption from the tax on insurance premiums

We also draw your attention to paragraph 4(2)(b) of the Excise Tax Act which provides for an exemption from tax for certain contracts to the extent that such insurance is not, in our opinion, available in Canada. The exemption is intended to provide relief from tax in cases where a particular class of insurance might not be available in the Canadian market or where the amount of coverage required is not available in Canada. These policies should be reported on the Excise Tax Return – Broker (B241), even if they may be eligible for an exemption.

Where a contract of insurance (including insurance against nuclear risk) would normally be subject to the 10% premium tax but is not available in Canada, you can apply for an exemption using Form E638, Application for Exemption from Insurance Premium Taxes Imposed under the Excise Tax Act – Part I, outlining the type of insurance purchased and the reasons why it could not be obtained in Canada.

Use Form E638A, Statement of Availability or Declination from Authorized Insurers – Tax on Insurance Premiums (Part l of the Excise Tax Act), to detail why the insurance purchased could not be obtained in Canada. This form is available on our website, www.cra-arc.gc.ca or by contacting our office. This form has to be completed by at least five authorized Canadian insurers to support your claim for an exemption from the tax imposed under Part l of the Excise Tax Act. Submit this form with Form E638. The CRA recommends that you submit your application for exemption at the same time as you submit Form B243, Excise Tax Return – Insured.

The CRA will consider an exemption only if:

• the particular class of insurance was not available from insurers authorized under the laws of Canada or of any province to transact the business of insurance; or
• there was a lack of market capacity at that particular time for that class of insurance.

The applicant must provide the following information with the exemption application:

• the contract number and amount;
• the period covered by the contract and the tax payable;
• the name and address of the broker/agent and of the insurance company;
• a copy of the insurance policy;
• five letters of declination, which must be dated prior to the start date of the policy, from insurers authorized under the laws of Canada or of any province to transact the business of insurance. (Letters issued by brokers are not acceptable) or five E638A forms completed by five authorized Canadian insurers; and
• a completed Form E638.

If information is missing from Form E638, processing of the application will be delayed. If the missing information is not provided to the CRA within 30 days of the date of contact with the insured, the exemption request may be denied.

List of authorized insurers

A list of companies under the Insurance Companies Act who are authorized to transact the business of insurance, is available upon request.

Penalty of late filing

Every broker, agent or insurer who refuses or neglects to make a return as required is liable to a penalty of $10 for each day of default or $50 whichever is the lesser.

Mailing and Contact information

Send these documents to the following address:

Canada Revenue Agency
Summerside Tax Centre
275 Pope Road
Summerside PE C1N 6E7

If you require additional information, contact one of the following:

Summerside Tax Centre
902-432-5472 or 1-877-432-5472
Fax: 902-432-5593

Excise Duties and Taxes Division
1-866-330-3304 (in Canada)

Frequently asked question and answers relating to Part I tax on insurance premiums can be found at the following web address: www.cra.gc.ca/etsl.