Agency Fees Included in Insurance Premiums
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0018, July 2003
Thank you for your facsimile message, dated April 2, 2003, inquiring about the application of Ontario retail sales tax (RST) on "agency" fees in relationship to insurance premiums.
This interpretation is based on the information provided and which is conveyed in the "Understanding of Facts" portion of this ruling. Please review the information for its completeness and accuracy. If it is determined that the information is incomplete or inaccurate, this interpretation will not be binding. In the event that our understanding of the facts is incomplete or inaccurate, please notify the undersigned, in writing, so that we may reconsider our opinion.
Understanding of Facts
Company A, charges RST on premiums of insurance which include "agency fees". Further to our conversation on May 30, 2003, Company A has indicated that some premiums of insurance may cover risk outside of Ontario and several clients have questioned the charge of RST on the "agency fees". As a result, Company A would like a written interpretation regarding the application of RST on "agency fees".
Legislation and/or Administrative Policy
Subsection 2.1(1) of the Ontario Retail Sales Tax Act (Act) states in part that:
- "Every person who is resident in Ontario, or who carries on business in Ontario, and who,
a. 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."
Subsection 2.1(3) of the Act states in part:
Every person who is not a resident of Ontario, or who does not carry on business in Ontario, and,
- who enters into a contract of insurance with an insurer in respect of individuals who are ordinarily resident in Ontario, real property in Ontario or personal property ordinarily situated in Ontario; or ...
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.
Subsection 2.1(8) of section 2.1 of the Act states in part:
Despite this section, no tax is payable on premiums for,
(l) property damage insurance, as defined in section 1 of the Insurance Act, in respect of property that is wholly outside Ontario or other insurance (but not group insurance) in respect of risk, peril or events wholly outside Ontario;
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,
Analysis
Under the Act, persons who are not residents of Ontario but who enter into a contract of insurance with an insurer in respect of real property or personal property ordinarily situated in Ontario, are required to pay RST at 8% on the premiums payable.
Taxable premiums include:
- All insurance premiums for contracts of insurance except those purchased by an individual to provide benefits for life, accident, sickness or disability, and those contracts specifically exempted under the Act.
- The definition of premium in respect of a contract of insurance 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 under writing fee that is shown separately from other charges.
- 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, late payment charges, NSF or similar such charges.
- Fees that are for the privilege of paying the premium over a period of time rather than paying the premium in full at the beginning of the contract are considered non-taxable financing fees, if identified to the customer as such. Canadian Mortgage and Housing Corporation initiation and underwriting fees are the only prescribed underwriting fees for the purposes of the definition of "premium".
Conclusion
Non-residents of Ontario who insure real or personal property situated in Ontario are required to pay RST on the premiums (including agency fees). Under these circumstances, Company A is required to charge, collect and remit RST at the rate of 8% on any agency fees included in insurance premiums paid by its non-resident clients.
However, if the insured property (real or personal) is located outside of Ontario, the insurance premiums are not taxable. Company A is not required to charge, collect and remit RST on the insurance premiums (including any agency fees) for coverage on properties or risk located outside of Ontario, regardless of whether the customer is a resident of Ontario or a non-resident.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
