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Marine/Cargo 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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0003, May 2000

Thank you for your letter of March 23, 2000 regarding the application of Ontario retail sales tax (RST) on premiums for marine/cargo insurance.

Understanding of Facts

It is our understanding that one of your clients imports goods from overseas and the western United States. You have set up this particular client with a marine/cargo insurance policy which covers its goods from the point the goods are put on the plane, from the plane to the boat, from the boat to the train and/or truck, until the goods reach its warehouse in Ontario. You would like to know if you should be charging the client RST on the premiums for such a policy. You would also like to know if your client may issue a Purchase Exemption Certificate in respect of this insurance policy.

Legislation and/or Administrative Policy

Section 2.1 of the Ontario Retail Sales Tax Act (Act) states in part that:

  1. "Every person who is resident in Ontario, or who carries on business in Ontario, and who,

    1. enters into a contract of insurance with an insurer;

    shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.

  1. Where a contract of insurance relates to a risk, peril or event that is taxable and exempt from tax or that is taxed at different rates under this section, the portion of the premium that is taxable or that is taxable at a particular rate shall be determined in the manner prescribed by the Minister.

Clause (d) of subsection 8 of section 2.1 of the Act provides an exemption from tax on premiums for marine insurance in respect of a vessel where the purchaser of the vessel is exempt from tax under paragraphs 29, 30 and 61 of subsection 7(1) of the Act. The definition of marine insurance is provided in section 1 of the Insurance Act and states:

"marine insurance means insurance against,

  1. liability arising out of,
    1. bodily injury to or death of a person, or
    2. the loss of or damage to properties, or
  2. the loss of or damage to property occurring during a voyage or marine adventure at sea or on an inland waterway or during delay incidental thereto, or during transit otherwise than by water incidental to such a voyage or marine adventure".

Also, clause (l) of subsection 8 of section 2.1 of the Act provides an a exemption for property damage insurance in respect of property that is wholly outside Ontario or other insurance in respect of a risk, peril or events wholly outside Ontario. The definition of "property damage insurance" is provided in section1 of the Insurance Act and states:

"property damage insurance" means insurance against los of or damage to property that is not included in or incidental to some other class of insurance defined by or under this Act;

Subsections (1) and (5) in section 18 of Regulation 1012 of the Act provides that the vendor of the insurance policy must determine the portion of the policy that is in Ontario and calculate the RST, if applicable, to that portion and states:

  1. In this section, "Ontario portion" means that portion of a premium under a contract of insurance that relates only to the risk, peril, or events in Ontario where the contract applies to a risk, peril or events both inside and outside Ontario.
  1. For the purposes of subsection 2.1(17) of the Act, the insurer shall calculate the portion of the premium that is taxable and exempt from tax or that is taxable at different rates as if rated under separate contracts of insurance.

Analysis

The Ontario Retail Sales Tax Branch does not have the authority to tax insurance premiums in respect of tangible personal property (TPP) that is aboard an aircraft in flight.

The exemption for marine insurance is not restricted only to the vessel, but also includes insurance on persons and goods where they are transported on an exempt vessel.

The portion of premiums paid to cover the following risks for cargo would be exempt:

  • risks occuring during air transport;
  • risks occurring during transport on an exempt vessel;
  • risks to transport the goods from the vessel to a first temporary storage warehouse in Canada, including transport within Ontario to the first temporary storage.

The portion of the premiums paid to cover the following risks in Ontario would be taxable:

  • any transportation of the goods occurring in Ontario after the first storage;
  • storage in warehouses or retail outlets in Ontario until the goods are shipped outside Ontario or sold to consumers in Ontario.

There is a difference between "marine" insurance and "cargo" insurance. Marine insurance is exempt under the Act and includes coverage of goods during voyages by sea and incidental land based travel.

Cargo insurance, on the other hand, is property insurance and is taxable regardless of who is purchasing it and what is being insured. Cargo insurance is designed to cover goods in transit, usually while the goods are in the custody of a haulage company. As property insurance, cargo insurance is subject to pro-rate rules where the risk occurs both inside and outside Ontario.

Conclusion

The portion of the policy covering air travel from outside Ontario is exempt of RST.

Also, RST would not apply to the portion of the premium where the goods are covered by marine insurance. However, RST will apply to the portion of the premium that covers the goods while they are in transit via land transport in Ontario to your client's warehouse i.e. cargo insurance.

If the policy is combined insurance with one premium paid, you as the vendor are responsible for apportioning the premium (exempt and taxable portions) i.e. the exempt air and marine portions and the taxable cargo portion and charging your client on the taxable portion. If the premium is not apportioned, the total premium is taxable. Your client may not issue a purchase exemption for this type of insurance premium.

If you have any further questions, please contact our office.

ISBN 0-7794-2507-3

© Queen's Printer for Ontario, 2002

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