Information and Disclaimer
This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.
Interpretation Letter IN-0015, July 2002
Thank you for your facsimile message dated March 12, 2002 (received in our office on April 5, 2002), inquiring about the definition of premium as it relates to the Ontario Retail Sales Tax Act (Act).
Understanding of Facts
You have asked for clarification regarding the definition of insurance premium as it relates to the Act. You have made the following statements:
- In the insurance business, insurance brokers selling insurance receive a bill of a "premium" payable to insurance company and a commission which the insurance brokers will keep.
- Under the Insurance Act the insurance agent can bill the insurance premium, i.e. the exact amount, not including the commission, to the policy holder and bill for his other services (in lieu of a commission a financial service amount) on a separate bill. You believe the financial service should be exempt from RST and GST as a financial service.
You are asking if an insurance broker were to bill in this manner would he/she be in violation of the Act.
Your letter pertains to a hypothetical situation. The Branch does not provide interpretations concerning hypothetical situations as the information may not necessarily apply to the transactions of an actual taxpayer due to possible differences in the taxpayer's situation. However, we are providing you with a general ruling based solely on the information which you have provided. Please note that this is not a ruling specific to any one taxpayer.
Should you require a ruling for a specific client please provide us with the name of the client along with written authorization from the client to deal directly with you.
We are not at liberty to discuss or comment on the GST. As you have specific queries regarding the GST, we suggest that you contact the Canada Revenue Agency (CRA) for specific information. The telephone number for the CRA is 1 800 959-5525.
Legislation and/or Administrative Policy
Under the Ontario Retail Sales Tax Act (Act):
2.1(1) Every person who is a resident of Ontario, or who carries on business in Ontario, and who,
- enters into a contract of insurance with an insurer;
- is a person whose risk is covered by group insurance;...
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.
The definition of "premium" in section 1 of the Act includes:
- any payment in respect of a contract of insurance and includes dues, assessments, administration fees paid for the administration or servicing in respect of the contract and other considerations, but does not include a reasonable financing fee or a prescribed underwriting fee that is shown separately from other charges,
Analysis
Taxable premiums include:
- All insurance premiums for contracts of insurance except those purchased by an individual to provide benefits for life, accident, sickness or disability, and those contracts specifically exempted under the Act.
- The definition of premium in respect of a contract of insurance includes dues, assessments, administration fees paid for the administration or servicing in respect of the contract and other considerations, but does not include a reasonable financing fee or a prescribed under writing fee that is shown separately from other charges.
- Taxable administration fees are meant to include such charges that are made for claims management, processing and servicing of the insurance or benefit program. In the legislation, the words "other considerations" are meant to capture charges that are not specifically identified as administration fees. However, "other considerations" will not include charges for consulting, late payment charges, NSF or similar such charges.
- Fees that are for the privilege of paying the premium over a period of time rather than paying the premium in full at the beginning of the contract are considered non-taxable financing fees, if identified to the customer as such. Canadian Mortgage and Housing Corporation initiation and underwriting fees are the only prescribed underwriting fees for the purposes of the definition of "premium".
Conclusion
Based on the information provided in your facsimile, we disagree with your statement that the services billed separately to an insurance broker's customer would be deemed to be exempt financial services. Such fees are considered to be taxable administration fees.
Any administrative fees (e.g. brokerage insurance fees) paid to administer or service a contract of insurance are to be included in the taxable premium. As a consequence, insurance brokers are required to charge, collect and remit RST at the rate of 8% on any administration fees in respect of insurance premiums charged to their clients, regardless that these fees may be billed on a separate invoice.
