Canadian Tax Adviser | KPMG
Some businesses are required to pay, by April 30, 2016, a federal tax of 10% of net premiums paid or payable if they’ve purchased insurance coverage outside Canada or were covered under a global insurance policy acquired by a parent company in 2015. Generally, the federal tax applies where the business or individual purchases coverage for risks in Canada directly, or where the coverage is obtained on their behalf by a third party. This tax could also apply where a business has insurance coverage with an insurer licensed in Canada but the broker or agent is outside Canada
These businesses and individuals may also be required to self-assess provincial taxes and levies on cross-border insurance coverage or multi-provincial insurance coverage. These provincial taxes and levies have specific rules and deadlines that are different from the ones that apply for the 10% federal tax.
April 30 deadline for 10% federal tax
The Excise Tax Act requires a person resident in Canada, who enters into an insurance contract (or on whose behalf such a contract is entered into) against risk within Canada with an insurer that is not authorized under the laws of Canada or any province to transact the business of insurance, to pay a 10% tax on the net premiums paid or payable during the preceding calendar year. This rule also apply to a non-resident corporation carrying on business in Canada. For example, a corporation in Canada may be liable to pay the tax where the parent company acquired global insurance outside of Canada on behalf of the entire corporate group. Affected taxpayers must remit the 10% tax to the CRA by April 30
A business may also be required to self-assess the 10% tax on insurance premiums related to an insurance contract that is entered (or entered into on its behalf) through a broker or agent outside Canada with an insurer in Canada.
In general, the 10% federal tax does not apply to certain types of insurance, such as life, sickness or personal accident insurance and insurance against marine risks. The law also provides relief in some cases where a business can clearly demonstrate that the insurance is effectively not available in Canada. To qualify for this exemption, the business must file an exemption application with the CRA and provide specific information and supporting documentation.
Don’t forget provincial sales tax and insurance premium taxes
Buying insurance coverage from insurers not registered in a particular province may also lead to provincial tax liabilities for some businesses.
Three provinces currently apply a sales tax on certain insurance contracts (Quebec, Ontario and Manitoba). Similar to the federal rules, a business that enters into contracts with insurers not registered in the province may be required to self-assess a provincial sales tax on the related insurance premiums. The sales tax rates, remittance deadlines and related non-compliance penalties vary by province.
A business may also be liable to pay insurance premium taxes as the insured person where the coverage is in a territory or a province in which the insurer is not licensed (otherwise, the insurer is generally liable for these taxes). In some cases, the business may be required to pay an increased levy on some of these premiums. For example, Alberta imposes a levy of up to 50% of the premiums and up to 75% if the tax is paid late. Again, the insurance premium tax rates, rules and remittance deadlines vary by province and may be different than the ones for provincial sales taxes.
For more information, contact your KPMG adviser.