Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 142556
August 17, 2012
Dear [Client]:
Subject: EXCISE INTERPRETATION
Clarification of 10% Part I Tax on Insurance Premiums
Thank you for your letter of February 3, 2012, requesting a written interpretation of the application of Part 1 of the Excise Tax Act (ETA). We apologize for the delay in responding to your questions.
Prior to addressing the specific questions in your letter, we will summarize the Part I tax and the exemption provision. All legislative references are to the ETA and the regulations therein, unless otherwise specified.
Description of tax
Part I of the ETA imposes a tax on the premiums of certain insurance contracts for persons resident in Canada. This includes persons who place insurance against risks in this country with insurers 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 Canadian laws or the laws of any province to transact the business of insurance. The tax is also applicable if persons resident in Canada place insurance against risks in this country with insurers, including any exchange, authorized under Canadian laws 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.
Exemption from tax
Paragraph 4(2)(b) of the ETA provides for an exemption from the tax for certain contracts when that insurance is not, in the CRA's opinion, available in Canada. The exemption is intended to provide relief from tax in cases where a particular class of insurance is not available in the Canadian market or where the capacity required is not available in Canada.
Your Questions
Question 1 – When writing to the Canadian insurers to request insurance coverage should the requested coverage reflect the total insurance coverage provide by the global policy (which would be in fact the only policy available to submit with the E638 application form) or does the Commissioner take the view in assessing the market capacity criteria that the coverage to be requested and therefore be subject to declination should only reflect the Canadian component of the risk?
The Part I tax is concerned with risks being insured that are ordinarily situated within Canada, not risks ordinarily situated outside Canada. We would not consider the liability coverage to be unavailable where a Canadian licensed insurer is able to provide liability coverage with respect to risks ordinarily within Canada but unable to provide liability coverage for risks ordinarily situated outside of Canada. Therefore we feel the coverage requested and shown in letters of declination should reflect only the Canadian component of the risk insured.
Question 2 – If the requests to Canadian insurers for coverage are dated after the global policy has been issued and therefore the letters of declination are also dated after this time, will the Commissioner allow the exemption from the tax to apply to the premium paid on the commencement of the policy, assuming of course the exemption is granted.
The CRA asks that request letters to Canadian authorized insurers for coverage are dated prior to the start date of the insurance policy and that letters of declination be dated prior or within a reasonable amount of time from the start date of the insurance policy for consideration toward an exemption to the Part I tax. Please note however that this policy is currently under review and letters of declination dated otherwise may be considered for exemption requests.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Part I tax on insurance premiums other than marine, regulations or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-0048.
Yours truly,
Michael Ryder
Rulings Officer
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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