Insurance Premiums on Rented Vehicles
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0011, August 2001
Thank you for your letter dated August 10, 2001 regarding the application of Ontario retail sales tax (RST) to insurance premiums on rental vehicles.
Understanding of Facts
We understand that Company A is engaged in the business of renting cars and trucks to customers (lessees) on a daily, weekly or monthly basis. Company A pays RST on its premiums when it purchases insurance from an insurance company and charges 8% RST on the vehicle rental charges including insurance. You stated that this appears to be double taxation.
As you are able to purchase vehicles exempt from RST for the purpose of resale (i.e. rental), you are of the opinion that you should also be able to purchase insurance in the same manner.
Legislation and/or Administrative Policy
Under the Ontario Retail Sales Tax Act,
| s.1 |
"fair value" includes,
|
|---|---|
| s.2(1) | Every purchaser of tangible personal property, except the classes thereof referred to in subsection (2), shall pay to Her Majesty in right of Ontario a tax in respect of the consumption or use thereof, computed at the rate of 8 per cent of the fair value thereof. |
| 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.2.1(5) |
Subsections (6), (6.1), (6.2) and (6.3) apply to every person who enters into a contract of automobile insurance with an insurer with respect to a motor vehicle that is required to be insured under the Compulsory Automobile Insurance Act. |
| s.2.1(6) |
Despite subsection (1), every person who is a resident of Ontario or who carries on business in Ontario shall pay to Her Majesty in right of Ontario a tax at the rate of,
|
Analysis
The tax rate on insurance in respect of a motor vehicle that is required to be insured under the Compulsory Automobile Insurance Act is currently 3%. The RST on automobile insurance premiums will be phased out by April 1, 2004. All other insurance premiums are taxed at the rate of 8%.
If lessors wish to insure their car rental fleet, they either enter into a contract of insurance with an insurance carrier or self-insure. In the former instance, the lessors are required to pay RST on the insurance premium billed by the insurance carrier or broker who will be responsible for remitting the tax to the Ministry. This differs from the treatment where lessors buy vehicles exempt from RST, since the purchase of the vehicle is for resale purposes. There is no such treatment for insurance. It cannot be said the lessors are purchasing insurance for resale purposes. They are purchasing insurance to insure their fleet whether it is rented or not.
Some lessors bill lessees for "collision damage waiver" (CDW) as part of the rental amount. In these instances, it is our understanding that there is usually a contract of insurance between the insurance carrier and lessor. The insurance carrier or broker is required to charge and collect RST from the lessor and to remit this tax to the Minister of Finance. The CDW becomes part of the fair value of the rental amount on which the lessor must charge RST to the lessee.
Conclusion
Based on our assumption that the insurance policy is between Company A and its insurer, not between the insurer and the lessees, Company A is recovering its insurance expenses from the lessees. RST at 3% applies to Company A's premiums and RST at 8% applies to the vehicle rental charges including insurance that are billed to the lessees. The insurance charge forms part of the fair value of the charge for the vehicle rental.
The RST Branch does not consider this to be double taxation. Under the Act, a purchaser must pay the tax. In the situation outlined above, there are two purchases. Company A is a purchaser of insurance and its customers are purchasers of rental vehicles.
If you have any further questions, please contact our office.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2002
