Premiums of Credit Insurance
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0002, April 2000
We refer to your facsimile message of March 22, 2000 to the Regional Tax Office regarding the application of Ontario retail sales tax (RST) to insurance premiums.
Understanding of Facts
Company A is an insurance broker that sells credit insurance on behalf of a credit insurance company. The insurance company performs credit checks on the customers who are to be extended credit by the insured (Company A's customer). The insurance company charges the insured $50 for each credit check to cover their administrative costs. It is your understanding that RST is not charged on the credit checks, only on the credit insurance policy itself.
Legislation
Under the Ontario Retail Sales Tax Act (the Act),
| s.2.1(1) |
Every person who is resident in Ontario, or who carries on business in Ontario, and who,
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable. |
|---|---|
| s.1 |
"premium" means
|
Analysis
Section 2.1(8) of the Act provides an exemption from RST for "the obtaining of a surety". Credit insurance sold to manufacturers, wholesalers and service industries guarantees against the non-payment of goods or services sold to their customers. Credit insurance policies are taxable contracts of insurance since the insurer's involvement is not pursued in the interest of the debtor, as is customary with sureties, but rather in the interest of the creditor.
Under clause (a) of the definition of "premium" in section 1 of the Act, 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, nor will they include late payment charges, NSF or similar such charges.
The $50 charge for the credit checks meets the definition of a "premium" as it is a fee paid for the "administration or servicing in respect of the contract".
Conclusion
The $50 charge for the credit checks is a taxable premium. RST must be collected and remitted on this charge.
If you have any further questions, please contact our office.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2002
