Premiums of Credit Life & Disability Insurance Purchased by Farmers and Status Indians
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0014, June 2002
Thank you for your facsimile message of March 21, 2002, inquiring about the application of Ontario retail sales tax (RST) on premiums of credit life and disability insurance sold to farmers and status Indians.
Understanding of Facts
It is our understanding that your company, Company A, provides group credit life and disability insurance to individual customers through auto, farm implement and heavy truck dealers. The insurance will pay the customer's loan payments if the customer is unable to work due to illness or injury, or will pay off any outstanding balance should the customer die during the term of the loan.
The policies, issued through Company A's network of independent dealers, are issued on an individual basis and the insured are specifically named on each policy. You confirmed that a master policy is issued to the dealers. The dealers currently collect and remit RST at 8% on all premiums sold. However, status Indians and farmers frequently ask dealers about their exemption status in regard to the payment of the 8% RST on the premiums.
Company A has asked specific questions regarding the application of RST on sales of credit life and disability insurance premiums to status Indians and farmers. These questions have been outlined and answered in the Analysis & Conclusion portion of this ruling.
Legislation and/or Administrative Policy
Tax on Insurance
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,
(a) enters into a contract of insurance with an insurer;
(b) is a person whose risk is covered by group insurance;
(c) is a plan holder or member of a benefits plan; or
(d) 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,
(a) 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,
(b) 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".
Purchase Exemption Certificates (PECs)
Sections 3(1)(d) and 3(2) of Regulation 1013 of the Act state:
(1) A person shall provide the vendor with a purchase exemption certificate if,
(d) the person enters into a contract of insurance for which the premiums are exempt from tax under clause 2.1(8)(b), (d), (e), (f), (j) or (k) of the Act or a contract of insurance prescribed under paragraph 1, 2 or 4 of subsection 9(2) of this Regulation or the planholder provides a benefits plan for which the premiums are exempt under subsection 2.1(18) of the Act.
(2) If a person purchases tangible personal property or a taxable service and does not submit a valid purchase exemption certificate to the vendor, the vendor shall collect tax from the person calculated on the price charged for the tangible personal property sold or the taxable service rendered.
Insurance - Status Indians
Under clause 2.1(8)(f) of the Act,
"no tax is payable on premiums for contracts of insurance entered into by an Indian, a band or the council of a band in respect of real or personal property situated on a reserve or in respect of an Indian ordinarily resident on a reserve, or a benefits plan or contracts of group insurance where the person whose risk is covered is ordinarily resident on a reserve".
Subsections 3(1) and 3(2) of Regulation 1013 require that all vendors of insurance charge and collect RST on premiums paid by status Indians, unless the insured provides a properly completed purchase exemption certificate (PEC).
Analysis and Conclusion
We will now answer Company A's specific questions:
Question 1. Is RST applicable to premiums collected on creditor insurance issued to status Indians for the protection of loans for autos purchased that are themselves exempt from RST due to current regulations?
Response: A premium of group credit life and disability insurance is exempt of RST when purchased by a status Indian living on a reserve. In order to purchase a premium of group credit life and disability insurance exempt of RST, the status Indians should provide a properly completed PEC to the dealer who is selling the premium, otherwise the transaction is taxable. The information on the PEC should include the status Indian number and the status Indian's address on the reserve.
Question 2. Is RST applicable to premiums collected on creditor insurance issued to farmers for the protection of loans for farm implements or equipment that is itself exempt from RST due to current regulations?
Response: There are no conditional exemptions available to farmers for group credit and disability insurance. Farmers are required to pay RST on premiums of group credit and disability insurance.
Question 3. In addition, we are repeatedly asked to verify that RST is applicable to our products in all other cases. Is it possible to get a definitive ruling or perhaps you could indicate where I could find something in your documentation that specifically mentions taxes applicable to credit life and disability insurance?
Response: All group insurance premiums are taxable under the Act unless there is a prescribed exemption. 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.
Group credit life and disability insurance insures the life of an individual and is not insurance on property. If the insured is a resident of Ontario and the policy is group life insurance, RST must be collected on the premium regardless of where the property is located.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
