Northbridge Commercial Insurance – Tax Court of Canada finds that zero-rating for fleet insurance must be assessed on a detailed vehicle-by-vehicle basis

The appellant issued fleet insurance policies to trucking companies who operated their vehicles in both Canada and the U.S. The appellant claimed input tax credits on the basis that 1/3 of its supplies of insurance were zero-rated. The 1/3 figure came from its historical analysis that 1/3 of its payouts under the policies it issued respected perils that arose in the U.S. (i.e., the policies to that extent “relate[d] to risks that are ordinarily situated outside Canada.”)

Graham J found that the quoted phrase in the zero-rating provision (Sched VI, Pt. IX, s. 2(d)) referenced the ordinary situs of the “objects” of the insurance, i.e., in approximate terms, the ordinary situs of the vehicles, their contents and their drivers. Furthermore, if a policy insures more than one object (as would clearly be the case for fleet insurance) “any apportionment of the supply of that policy into exempt and zero-rated parts should occur on an object-by-object basis” (e.g., looking at the ordinary situs of each vehicle in the insured fleet).

Instead, what the insurer had done was to effect apportionment “on a global basis.” Since Graham J did not “have any specific evidence regarding the individual policies in issue, let alone evidence regarding the vehicles covered by those policies,” he dismissed the appeal.

However, he went on to indicate that if what evidence he had seen was representative, he “would have found that those policies related to risks that were ordinarily situated in Canada, [so that] the supply of each policy was entirely an exempt supply.” In rough terms, this reaction was based on the fleet vehicles and their drivers being based in Canada, albeit, making trips to the U.S.

Neal Armstrong. Summary of Northbridge Commercial Insurance Corporation v. The Queen, 2020 TCC 132 under ETA Sched. VI, Pt. IX, s. 2(d).