Group Insurance Under a Master Policy
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0012, March 2002
Thank you for your facsimile message dated November 27, 2001, inquiring about the application of Ontario retail sales tax (RST) on group insurance.
Understanding of Facts
It is our understanding that Company A, is the holder of a master policy of insurance that permits Company A to sell group insurance. Company A sells insurance to its individual clients under the master policy. RST is charged, collected and remitted by Company A on each individual policy sold and issued to its clients.
Company A has recently been advised by the insurance company that if Company A issues a purchase exemption certificate, Company A would not be required to pay the RST on that portion of the insurance policy under which it is selling insurance policies to its clients. Company A would like written confirmation of the correct application of RST on group insurance.
Legislation and/or Administrative Policy
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,
- enters into a contract of insurance with an insurer;
- is a person whose risk is covered by group insurance;
- is a plan holder 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.
Section 1 of the Act provides the definition of "premium" and states in part:
"premium" means,
- 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,
- any charge made by the holder of group insurance to any person whose risk is covered by the policy,
Group Insurance
Under section 1 of the Act, "group insurance means a policy of insurance that covers, under a master policy, the participants of a specified group or of a specified group and other persons."
Section 3.1 of Regulation 1013 states in part:
- A holder of group insurance who is a vendor and who has remitted to the Minister the tax collected on charges paid to the holder by persons whose risks are covered by the policy shall issue a certificate to the insurer, signed by the holder, certifying the amount of the tax remitted to the Minister and shall deduct this amount from the tax otherwise payable on the premium by the holder.
- Upon receipt of the certification, the insurer shall collect and remit to the Minister an amount equal to the difference between the tax payable on the premium paid by the holder to the insurer and the amount of tax referred to in the holder's certification.
Analysis
For purposes of the Retail Sales Tax Act, group insurance means a policy of insurance that covers, under a master policy, the participants of a specified group.
A master policy is an insurance policy, issued by the underwriter to the person making available the insurance products to its members/customers, which describes the coverages, conditions, and eligibility criteria to those who wish to purchase the insurance coverage. For example, many universities offer life insurance to their alumni. The university is the holder of a master policy. The insurance company does not issue individual policies to the members. Since there is a master policy, the insurance coverage is considered taxable group insurance and RST is to be charged on the insurance premiums.
Conclusion
The following information is based on the assumption Company A is the holder of a master policy that permits it to sell group insurance.
Provided the customer is named as the beneficiary, the customer is the person purchasing the insurance, and the person required to pay the premium and the RST. Any charge made by the Company A, for the service of providing an insurance company to insure the customers' goods, is a fee in respect of a contract of insurance and is also taxable. Company A must be registered as a vendor and is required to charge, collect and remit the RST directly to the Branch.
As an example, Company A would show a total amount for the premium, e.g. $12.50 ($10.00 actual premium and $2.50 administration fee) and charge RST on the full amount. Company A would remit the $10.00 premium to the insurance broker along with a statement of certification that Company A has remitted the RST collected ($0.80) directly to the Branch. Company A would remit a total of $1.00 ($0.80 +$0.20) on its regular retail sales tax return to the Branch. The broker would remit the premium to the insurance company along with a statement that the RST has been collected and remitted by Company A.
Company A should separate, on the customer's invoice, the taxable insurance costs from the charges for non-taxable services.
Where Company A has paid RST to the insurance company and collected and remitted RST from
customers, Company A may claim a refund of the RST paid to the insurance company. In order to claim a
refund, a "General Application for Refund of Retail Sales Tax
" form (copy enclosed) must be completed
and signed by Company A and submitted to the address indicated on the form. Refund applications must
be received within four years from the date RST was paid.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
