Here is what you need to know about the new tax, straight from the province
The retail sales tax on insurance premiums will be payable for new contracts and renewals entered into on or after July 1, 2016. There will be limited retroactivity to April 14, 2016, to impose tax on premature cancellations to address tax avoidance.
The obligation to collect and remit the retail sales tax will rest with the party that bills and collects the premiums, whether the insurer or the broker.
An amendment will be made to the province’s Revenue Administration Act, to enact the tax and to provide that a person or company who maintains a contract of insurance relating to property, risk, peril or events in the province must pay 15% tax on the premium for that insurance.
The base for the retail sales tax on insurance premiums will be the same as the base for the former tax which was terminated in 2008. The tax will apply to contracts of insurance (mainly vehicles, homes and business locations) and includes all dues, assessments, transaction fees and other consideration charged by the insurer or the insurer’s agent.
The following types of insurance will be exempted from the tax on insurance premiums, as they are defined in the Insurance Companies Act: Accident and sickness insurance; Life insurance; Marine insurance (other than marine insurance on sport watercraft, when sport watercraft are 20 tons gross or less); Also excluded are surety, guarantee or fidelity type bonds.
The retail sales tax on insurance premiums would be remitted on a basis that coincides with the timing of premium installments by customers. It is common practice among insurers, agents or representatives to extend payment terms to customers, i.e. the premium may be payable by the insured in twelve equal monthly installments.
Where a person purchases a contract of insurance from an out of province seller not registered to collect the tax, then that person must self-assess and remit the appropriate amount of tax directly to the Department of Finance.
Companies purchasing a contract of insurance should note that the 15% tax charged is not the Harmonized Sales Tax. Consequently, it is not eligible as an input tax credit on the HST return.