Insurance Contracts for Non-Resident Companies
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0019, April 2004
We refer to your facsimile dated April 15, 2003 regarding the application of Ontario Retail Sales Tax (RST) to premiums paid under contracts of insurance written for non-resident companies. We apologize for the delay in our response.
Your letter pertains to an unnamed client's situation. As the facts of each case may differ and what may appear to be an unimportant difference could be a critical factor in determining the application of RST, it is Branch policy not to provide interpretations regarding unidentified clients. However, we are providing you with a general response based on the information provided. Our ruling does not pertain to any specific taxpayer.
Understanding of Facts
In the scenario provided, a U.S. based insurance carrier will provide liability insurance coverage to a U.S. based parent company resident only in the U.S. The circumstances are as referenced below:
- the parent company negotiates a contract of insurance which covers the risk of all subsidiary companies, including an Ontario located company.
- the parent company pays the insurance premium directly to the insurance carrier.
- upon occurrence of a covered risk, the insurance carrier will provide settlement to the parent company.
- the parent company recovers the costs which it incurs on behalf of its subsidiary companies through intercorporate transfer transactions, including insurance premiums, based on predetermined prorata formula.
Quesions or Concerns
You have asked whether the insurance premium is subject to RST and if it is, what is the proper mechanism for companies to report on and meet such liability in circumstances where the insurance carrier/broker is not authorized to administer RST on the Province's behalf.
Legislation and/or Administrative Policy
Under the subsection 2.1(1) of the Ontario Retail Sales Tax Act (Act), every person who is resident in 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 planholder 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.
(3) 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
- who is a planholder in respect of members who are ordinarily resident in Ontario and who are not employees of the planholder,
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.
Registered vendors that have purchased taxable goods or services for use in Ontario from a nonregistered vendor are required to report on the resulting tax liability on line 3 of its RST return filings. Nonregistered vendors that purchase taxable goods or services from other non-registered vendors are required to disclose any resulting RST liabilities through a direct disclosure to the Retail Sales Tax Branch.
Analysis and Conclusion
Premiums for liability insurance which pertain to business risk in Ontario are subject to RST at the rate of 8%. Based on our understanding that the U.S. insurance carrier is not registered as a vendor with Ontario, it is therefore, not authorized to charge RST to its clients. The onus is therefore on the purchaser of the insurance to self assess RST on the portion of its insurance premiums that pertain to its Ontario risk.
Furthermore, the described arrangement identifies that the U.S. parent company is arranging the insurance coverage on behalf of its subsidiaries. As an agent for its Ontario based subsidiary, that is acquiring insurance which is subject to the application of RST, the U.S. based parent can account for RST on the proportionate amount of the premium it pays by making a disclosure to the Ministry of Revenue. Where the U.S. parent fails to account for RST on the proportionate premium that it pays to cover the Ontario risk, the Ontario subsidiary is required to account for RST on the portion of the premium that it pays to the parent through the intercorporate transfer transactions. If the Ontario subsidiary is registered with the RST Branch, as a vendor, it may report its associated RST liabilities on line 3 of its RST return filing which covers the period in which the premium was paid. Where the Ontario subsidiary is not registered as a vendor for the purpose of administering RST, it would be required make a disclosure of its RST liabilities to its local tax office office.
We are enclosing Ontario Sales Tax Guide # 519 - Insurance - General Information for your information.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
