Self-Insurance for General Liability
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 retail sales tax 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-0001, March 2000
We refer to your facsimile message of March 23, 2000 and our telephone conversation of March 24, 2000 regarding the application of Ontario retail sales tax (RST) to self-insurance.
Understanding of Facts
We understand that your client is a company that pays amounts into a fund to self-insure itself for general liability in the event a customer sustains an injury (e.g. from a fall) in the company's store.
LEGISLATION
Under subsection 2.1(1) of the Ontario Retail Sales Tax Act (Act),
Every person who is a resident of Ontario, or who carries on business in Ontario, and who,
- is a planholder or member of a benefits plan; or
- is required to contribute to an insurance scheme or a compensation fund established by or under any Act of the Parliament of Canada or the Legislature of Ontario,
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.
"Benefits plan" is defined in section 1 of the Act to mean "a funded benefits plan or an unfunded benefits plan".
"Funded benefits plan" is defined in section 1 of the Act to mean "a plan, including a multiemployer benefits plan, which gives protection against risk to an individual that could otherwise be obtained by taking out a contract of insurance, whether the benefits are partly insured or not, and which comes into existence when the premiums paid into a fund out of which benefits will be paid exceed amounts required for payment of benefits foreseeable and payable within thirty days after payment of the premium".
"Unfunded benefits plan" is defined in section 1 of the Act to mean "a plan which gives protection against risk to an individual that could otherwise be obtained by taking out a contract of insurance, whether the benefits are partly insured or not, and where the payments are made by the planholder directly to or on behalf of the member of the plan or to the vendor upon the occurrence of the risk".
"Protection against risk to an individual" is defined in section 1 of the Act to include "any undertaking to pay on death, or disability, or for supplemental health care, drugs, dental care, vision care, hearing care, or for protection against loss of income due to illness or accident or that provides any other similar benefits to an individual".
Analysis
Where a company self-insures for liability in the event of an injury to a customer on its premises, this does not meet the definition of "a plan which gives protection against risk to an individual". In this case, the plan is to protect the company against legal liability.
Conclusion
Assuming that your client's liability fund is not a fund established by or under any Act of the Parliament of Canada or the Legislature of Ontario, to which the company is required to contribute, the amounts paid into the fund are not taxable.
If you have any further questions, please contact our office.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2002
