22 February 2007 Excise Interpretation 81357 - Requirement to be licensed

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX and your XXXXX messages XXXXX concerning the application of Part I of the Excise Tax Act (the "ETA") to aquaculture insurance sold to residents of Canada by XXXXX Insurance Company XXXXX, where the insurance is sold through a broker or an agent resident in Canada. I apologize for the delay in responding to this matter.

XXXXX was authorized by XXXXX to act as the representative for XXXXX with respect to matters relating to the Excise Tax Act.

All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.

Statement of Facts

1. XXXXX. XXXXX also carries on the business of insurance against risks incidental to aquaculture.

2. XXXXX is not incorporated or continued in Canada and its central management and control are based in XXXXX. XXXXX does not have an office, branch or place of business in Canada. XXXXX maintains a Canadian bank account for ease of collection of premiums and the expeditious settlement of claims in Canada. XXXXX is insuring against only marine and aquaculture risks in Canada.

3. XXXXX has marine insurance licences in the Canadian provinces of XXXXX, authorizing XXXXX to transact the business of marine insurance in those provinces. XXXXX has met all of the various provincial regulatory requirements needed for the provision of insurance in these provinces including the vesting of assets in a trust fund.

4. The Office of the Superintendent of Financial Institutions ("OSFI") has ruled that aquaculture insurance is in the nature of property insurance and that XXXXX would not be authorized to insure aquaculture risks in Canada under its marine licences.

5. XXXXX is still awaiting the issuance of a marine insurance licence in the province of XXXXX. As such, XXXXX is not yet listed on the website of the XXXXX as an authorized insurer. XXXXX.

Ruling Requested

You would like us to confirm that the 10% tax imposed on insurance premiums under subsection 4(1) of the ETA is not applicable in those specific circumstances where a Canadian resident enters into a contract of insurance with XXXXX to insure aquaculture or other risks in Canada through a broker or agent inside of Canada.

Ruling Given

Based on the facts set out above, we rule that the 10% tax imposed on insurance premiums under subsection 4(1) of the ETA is applicable in those circumstances where a Canadian resident enters into a contract of insurance with XXXXX to insure aquaculture risks in Canada through a broker or agent inside of Canada since XXXXX is not authorized to transact the business of property insurance in Canada, provided that an exemption has not been obtained by the Canadian resident from the Commissioner under subsection 4(2) of the ETA.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future change to the Excise Tax Act, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

Explanation

With some exceptions, paragraph 4(1)(a) of the ETA imposes a 10% tax on a contract of insurance in circumstances where the contract of insurance is entered into or renewed with an insurer not authorized under the laws of Canada or of any province to transact the business of insurance.

You are of the view that no tax should be imposed under subsection 4(1) of the ETA on Canadian residents who enter into contracts of property insurance (i.e., aquaculture) or any other class of insurance with XXXXX, unless those contracts of insurance are entered into through brokers or agents outside of Canada.

You cited Friesen v. Canada, [1995] 3 S.C.R. 103, in which the Supreme Court of Canada said:

When a provision is couched in specific language that admits of no doubt or ambiguity in its application to the facts, then the provision must be applied regardless of its object and purpose. Only when the statutory language admits of some doubt or ambiguity in its application to the facts is it useful to resort to the object and purpose of the provision. ^[vii]footnote 1

However, Mr. Justice Iacobucci stated in the more recent Supreme Court of Canada case, Rizzo v. Rizzo Shoes Ltd. (Re) [1998], 1 S.C.R. 27, at paragraph 21:

21. Although much has been written about the interpretation of legislation (see, e.g., Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994) (hereinafter "Construction of Statutes"); Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed. 1991)), Elmer Driedger in Construction of Statutes (2nd ed. 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone. At p. 87 he states:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. ^[viii]footnote 2

XXXXX is authorized to transact the business of marine insurance under the laws of XXXXX. As such, you contend that XXXXX is not an insurer specified under paragraph 4(1)(a) of the ETA. However, the title of Part I of the ETA is "INSURANCE PREMIUMS OTHER THAN MARINE" (emphasis added). For purposes of gaining some insights into the purpose behind the 10% tax imposed under Part I of the ETA, it would be reasonable to conclude that with respect to Part I of the ETA, we are interested in contracts of insurance, other than those related to marine risks (and certain other risks

(a) any contract of life insurance, personal accident insurance, sickness insurance or insurance against marine risks, or any contract of insurance against nuclear risks to the extent that the insurance against nuclear risks is not, in the opinion of the Commissioner, available within Canada; or

(b) any other contract of insurance entered into after February 19, 1973 to the extent that the insurance is not, in the opinion of the Commissioner, available within Canada.^[ix]footnote 3.

By adhering to the modern approach to statutory interpretation, we are of the view that the words "...not authorized under the laws of Canada or of any province to transact the business of insurance..." have to be read in their entire context within Part I of the ETA so as to ascertain the intention of Parliament (the law as expressly or impliedly enacted by the words), the object of Part I of the ETA (the ends sought to be achieved), and the scheme of the ETA (the relationship between the individual provisions of the ETA).

Examining the wording in question within its internal context, we are of the view that there is a link between "... the contract of insurance" referred to in the preamble to subsection 4(1) of the ETA, and the subsequent wording that refers to "... the business of insurance ..." that appears in the latter part of paragraph 4(1)(a) of the ETA.

It is our view that the 10% tax imposed on insurance premiums under subsection 4(1) of the ETA is applicable in those circumstances where a Canadian resident enters into a contract of insurance with XXXXX to insure aquaculture risks in Canada through a broker or agent inside of Canada since XXXXX is only authorized to transact the business of marine insurance which specifically falls outside the scope of Part I of the ETA.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 941-2348.

Yours truly,

Douglas Wood, CGA
Rulings Officer
Excise Taxes and Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

2007/01/25 — RITS 82854 — Eligibility for an Excise Tax Refund on Purchases of Aviation Fuel