RST Information Notice, July 2001

If you have questions or would like further information, please contact the Tax Advisory Services Branch, Retail Sales Tax, at 905 433-6313 or 1 888 285-7815.

A reciprocal insurance exchange (RIE) is a non-profit organization comprised of a group of individuals or corporations, referred to as "subscribers", who pool their insurance coverage requirements. The amount of liability insured through an RIE can vary from a low of 10% to a high of 85%. For protection over and above this amount, RIEs purchase contracts of reinsurance from traditional insurance companies.

In general, Ontario retail sales tax (RST) is payable, at the rate of 8%, on premiums paid for a contract of insurance entered into with an insurer. In 1999, the RST Branch issued several rulings to various RIEs stating that RST was not payable on amounts paid to the RIE by subscribers. These rulings were based on the RST Branch's understanding that RIEs were not subject to the provisions of the Ontario Retail Sales Tax Act (Act) dealing with insurance.

Based upon further review and on a June 30, 2000 decision by the Tax Court of Canada, the Ministry considers RIEs to be insurers under the Act since they undertake contracts of insurance to indemnify subscribers against loss for various risks. While the Insurance Act states that the subscribers to an RIE are not deemed to be insurers, it does not exclude an RIE itself from being an insurer. The essence of an insurance contract is the shifting of loss from one person to another which is precisely the nature of an RIE.

Effective August 1, 2001, RIEs must charge, collect and remit RST on the contributions made by their subscribers. RIEs may purchase contracts of reinsurance from insurance companies exempt from RST.

RIEs will not be assessed for RST that was not collected from their subscribers for the period from May 26, 1999 to July 31, 2001. Refund claims that have been submitted by RIEs for the RST paid by their subscribers will be disallowed as the tax was correctly paid.

© Queen's Printer for Ontario, 2001

ISBN 0-7794-1627-9