The Ontario Ministry of Finance has issued a long overdue update to the retail sales tax (RST) publication on insurance and benefits plans. The previous RST Guide 519, “Insurance – General Information” was dated September 2006. This new document is more comprehensive and includes definitions for specific insurance and benefits plans terms, as well as a sample purchase exemption certificate. Examples of taxable, exempt and conditionally-exempt premiums are also listed.
Despite the province’s change to harmonized sales tax (HST) in 2010, RST at the rate of 8% still applies to premiums paid under taxable insurance contracts, group insurance, specific contributions into funded and unfunded benefits plans and unfunded qualifying trusts, and amounts paid into insurance schemes or statute-based compensation funds. However, the following fees are not subject to RST: premiums subject to HST, consulting charges, late payment fees, non-sufficient fund charges, initiation and underwriting fees for mortgage insurance, and reasonable financing fees.
Certain insurance premiums qualify for exemption from RST including: automobile insurance; contracts for the service, maintenance or warranty of tangible personal property; individual life insurance; and property insurance in respect of risks or perils wholly outside Ontario.
While agents/brokers may collect and remit RST on behalf of an insurer (subject to both parties meeting agency/registration conditions), insurers are accountable for the accuracy of collection and remittance. Group insurance premiums for employers are taxable based on the place of employment and not on the employee’s residency. However, employee premiums are taxable based on both the place of employment and residency.
The timing of RST payable on benefits plans is dependent on their classification as funded or unfunded. For the former, RST is payable at the time the planholder pays amounts into the plan; for the latter, RST applies to the claims paid by the planholder. In both cases, RST applies to any amounts paid by members in order to receive benefits under the plan. Special rules apply if the designation of a benefits plan is changed from one to the other.
Reciprocal insurance exchanges (RIEs) are required to register, and may purchase contracts of reinsurance from insurance companies exempt from RST.
Purchase exemption certificates (PECs) and identity cards may qualify some purchasers to enter into certain contracts of insurance and benefit plans without paying RST. However, it is up to the vendor to maintain appropriate records to support this exemption. As mentioned above, a sample PEC is included in the document to illustrate the information required on a valid form.
RST refunds, where applicable, must be made within four years from the due date of the premium on which RST was collected.
Lastly, if a person has not paid RST on the purchase of insurance, it is their responsibility to self-assess and remit the RST on taxable premiums related to risks in Ontario. This may occur, for example, where intercompany charges from a U.S. parent include payments for insurance by a Canadian subsidiary.
ON RST - Insurance and Benefits Plans
Ontario Updates Publication Regarding Retail Sales Tax on Insurance and Benefits Plans
Tax Development Apr 21, 2014