1 February 1996 GST/HST Interpretation 11595-1 - Tax Status of Insurance Premiums

This is in reply to XXXXX letter dated October 16, 1995 wherein he requested our opinion on the tax status of the insurance premiums which XXXXX is reimbursed for by the other parties insured under insurance policies. We understand that XXXXX is registered and is under GST audit.

From a review of the insurance policies issued in the name of XXXXX and the Rental Management Agreement between XXXXX and the property owners, our understanding is:

•   In the course of providing management services, XXXXX negotiates group insurance policies for a number of associated persons (all parties named under the policies are associated with XXXXX. It is also named as an insured party under the group policies as it too owns property.

•   The sample copies of the insurance polices issued by the insurers XXXXX show that the insurers have provided insurance to the persons named in the policies, i.e. XXXXX[.]

•   XXXXX has confirmed that it negotiates the policies, pays the premiums and then is subsequently reimbursed by the other insured parties. The reimbursements are usually taken from trust funds held by XXXXX in respect of rents collected on behalf of the insured parties (who are property owners). XXXXX indicates that it co-ordinates the submission of any insurance claims that may be made by the insured parties under the terms of the policies.

•   Pursuant to Article 2.01 of the Rental Management Agreement, the "Agreement", the property owners engage and appoint XXXXX to be their sole and exclusive representative and managing agent to manage, for and on behalf of the owners and within the provisions of the Agreement, the rental units (referred to in the Agreement as the Unit(s)) and to act on behalf of the owners in carrying out the duties as set out in the Agreement. This Article also authorizes XXXXX to enter into such contracts and agreements on the name of and on behalf of the owners as may be necessary for the performance of such duties.

•   Paragraph 3.01(i) of the Agreement authorizes XXXXX to insure and keep insured, at the owners' expense, all Unit(s) covered by the Agreement. In addition, Article 9.01 of the Agreement authorizes XXXXX to take out insurance, at the owners' expense, as may be usual for rental properties of this type and shall cover loss of rental income in case of fire or other damage.

•   Article 9.02 indicates that all contracts of insurance shall name as insured the owners and XXXXX[.] Because of XXXXX close relationship with the owners XXXXX negotiates various types of group insurance policies in respect of all property. A portion of the cost of the group insurance is then allocated to each owner based on their respective share of the property covered under the particular policy.

•   Regarding the various expenses that XXXXX incurs pursuant to the Agreement, most of the invoices for these expenses (with a few exceptions) are in XXXXX name and not in the name of the owners.

Issues:

What is the tax status of the group insurance premiums which XXXXX is reimbursed for by the other persons insured under insurance policies? Does section 178 of the Excise Tax Act apply because the reimbursement of the premiums forms part of the consideration XXXXX receives for the taxable supply of services under the rental management agreement?

Our Comments:

Our review of this case considered the essential qualities and indicators of agency as enunciated in Policy Statement P-182 entitled "Determining the meaning of "Agent" and "Agency"". The facts show that there is a supply of insurance to the insured persons identified in the insurance policy. XXXXX is required under the rental management agreement to act as an agent for the arrangement of the insurance coverage and acquire such insurance at the expense of the property owner.

XXXXX is, therefore, not required to collect tax in respect of the amount reimbursed related to payments for insurance coverage. XXXXX has incurred these expenses in making supplies of its property management services to the owners under the rental management agreement. Section 178 of the Act does not apply where in making a supply of a service a person incurs an expense as an agent of the recipient for which the person is reimbursed by the recipient.

Should you have any further questions, please do not hesitate to contact Roy Osudar at (613) 952-9220 or Tim Côté at (613) 952-3413.

J. Sitka
A/Director
Financial Institutions and Corporate Reorganizations Division
GST Rulings and Interpretations