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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 197768r
Dear [Client]:
Subject: [GST/HST Interpretation]
Application of GST/HST to new home warranty insurance
We refer to our letter to you of [dd/mm/yyyy], regarding the application of the goods and services tax/harmonized sales tax (GST/HST) to new home warranty insurance policies issued by insurers as outlined in the Excise and GST/HST News No. 104.
Since our previous letter was issued, we have further reviewed the above issue, and we would like to advise you of our revised position. This revised letter supersedes the letter of [dd/mm/yyyy].
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
[GST/HST Interpretation]:
Paragraph (a) of the definition of an insurance policy in subsection 123(1) includes a policy or contract of insurance (other than a warranty in respect of the quality, fitness or performance of tangible property, where the warranty is supplied to a person who acquires the property otherwise than for resale) that is issued by an insurer.
We understand that in certain provinces, before the construction of a new home (that is, a residential unit or common property of a condominium complex or strata residential building) commences, the builder of the new home may register the new home with an insurer for the insurer to provide a new home warranty insurance policy in respect of the new home. In [some provinces], provincial legislation requires the builder to register each new home with an insurer for the insurer to issue a new home warranty insurance policy, in order to provide protection to the home owner (or condominium/strata corporation) against construction defects in the new home.
It is our understanding that where this is the case, generally an insurer and a builder enter into an agreement (Builder Agreement). Under the Builder Agreement, the insurer agrees to provide new home warranties in the form of the new home warranty insurance policies, and the builder agrees to perform the warranty obligations of these policies, which generally includes replacing and repairing construction defects in the new home. Therefore, the primary responsibility for carrying out the warranty obligations regarding the new homes rests on the builder. The new home warranty insurance policies are evidence to the homeowner (or condominium/strata corporation) that a warranty is provided in respect of the new home constructed by the builder.
It is also our understanding that if the builder does not perform these obligations, the insurer is liable under the new home warranty insurance policies to indemnify the homeowner (or condominium/strata corporation) for the repair or replacement of the defects in the new home. Therefore, in essence, it is the warranty obligations of the builder that are insured by the insurer as the insurer only provides a back-up to the builder’s warranty and therefore the insurer takes on the risk of the builder.
As a result, based on our understanding explained above, in our view the insurer and the builder have a contract of insurance that is included in paragraph (a) of the definition of insurance policy in subsection 123(1). Further, the insurer is making a supply of a financial service that is included in paragraph (d) of the definition of financial service in subsection 123(1), and is not excluded by any of paragraphs (n) to (t) of that definition. Consequently, the supply of the financial service by the insurer to the builder is exempt under section 1 of Part VII of Schedule V.
Furthermore, in our view although the homeowners (or condominium/strata corporations) are the beneficiaries of the new home warranty insurance policies, there is no separate taxable supply of the policies by the insurer to a homeowner (or condominium/strata corporation) when the insurer issues those policies.
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 Canada Revenue Agency (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 Hélène Lacasse, directly at 343-571-0207. 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,
Catherine Séguin-Ouimet
Director/Directrice
Financial Institutions & Real Property Division
/Division des institutions financières et des immeubles
Excise & GST/HST Rulings Directorate
/Direction d’accise et des décisions de TPS/TVH
Canada Revenue Agency
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