Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 169841
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Proposed supply to an insurer
Thank you for your letter and documentation concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a proposed supply to an insurer. 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.
Based on your letter and the documentation, we understand that:
1. […] (the Corporation) is proposing to set up a subsidiary, […] (the Agency), which would be regulated and licensed provincially as an insurance agent.
2. The Agency would enter into a proposed […] Agreement (the Proposed Agreement) with an insurance company that would be authorized under the laws of Canada to carry on an insurance business. […].
3. […][Terms of the agreement].
4. The Proposed Agreement indicates that the Agency will perform the responsibilities outlined in the […] exhibit. The […] exhibit for the Insurance provides that the Agency will perform activities such as all marketing of the Insurance; acting as the initial point of contact for customers for the Insurance; completing enrollment information and forwarding it to the insurer; referring all claim enquiries to the insurer; providing reports to the insurer; and conducting market research to ensure the Insurance continues to provide low cost coverage to customers. The Proposed Agreement also provides that the Agency may subcontract its responsibilities to its affiliates such that the Agency may not be performing any activities.
5. The Proposed Agreement provides that, in consideration for the fulfilment of the Agency’s responsibilities […], fees will be paid in accordance with each […] exhibit. […].
INTERPRETATION REQUESTED
You would like confirmation that, under the proposed arrangement, the Agency would be making an exempt supply of an “arranging for” service under paragraph (l) of the definition of “financial service” in subsection 123(1).
INTERPRETATION GIVEN
As this is a proposed arrangement, many of the facts have not yet been determined. However, we offer the following general comments.
A supply of property or a service made in Canada is taxable unless it is exempt under Schedule V to the ETA. A supply of a financial service is exempt under Part VII of Schedule V to the ETA unless it is specifically zero-rated under Part IX of Schedule VI to the ETA (which generally zero-rates the supply by a financial institution of certain financial services to a non-resident person, or the supply by a financial institution of a financial service that relates to certain insurance policies issued by that financial institution).
A financial service is defined in subsection 123(1) to mean anything that is included in any of paragraphs (a) to (m) of that definition and that is not excluded by any of paragraphs (n) to (t) of that same definition. For example, a financial service includes, under paragraph (d), the issuance of a financial instrument. A “financial instrument” is defined in subsection 123(1) to include an “insurance policy”.
A financial service also includes under paragraph (l), a service of “arranging for” a financial service that is included in any of paragraphs (a) to (i) of the definition of financial service, and not excluded by any of paragraphs (n) to (t) of that definition. In determining if a person is “arranging for” the issuance of insurance, all of the facts surrounding the transaction must be considered, including the activities performed by the intermediary and the nature of the insurance product.
Although we do not have all the facts concerning the above transactions, generally the activities of an intermediary such as marketing a […] insurance […]; completing enrollment information for low cost […] insurance and forwarding it to the insurer; referring all claim enquiries to the insurer; providing reports to the insurer; and conducting market research are activities that are predominantly promotional and administrative services. A supply of a promotional or administrative service is a taxable supply and not a supply of an arranging for service under paragraph (l) of the definition of a financial service.
As you may be aware, we have recently added a note to GST/HST Technical Information Bulletin B-105, Changes to the Definition of Financial Service, on the Canada Revenue Agency (CRA) website indicating that references to insurance and updated examples regarding insurance will be provided in another publication. The note also indicates that, in determining if a person is “arranging for” the issuance of insurance, all of the facts surrounding the transaction must be considered, including the activities performed by the intermediary and the nature of the insurance product. A promotional or administrative service does not become a financial service of “arranging for” the issuance of insurance simply because the person is the only point of contact between the customer (insured) and the insurer.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation 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 or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (780) 495-6518. 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,
Heather Gibbard
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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