Remember, the federal tax on cross-border insurance is due April 30, 2020
As a reminder, the 10% federal tax applicable to certain cross-border insurance premiums is due April 30, 2020. This federal tax can apply to businesses that have purchased insurance coverage from insurers outside Canada in 2019, or to businesses covered under a global insurance policy acquired by a parent company in 2019 from insurers outside Canada. This federal tax is distinct from the provincial sales tax (PST) liabilities and insurance premium taxes that businesses may also face throughout the year if they have bought insurance coverage from insurers that are not registered in certain provinces where they operate.
Note that while the federal government has released GST/HST relief measures to help businesses during these challenging times, this relief does not apply to the federal 10% tax on insurance premiums.
Federal tax on net insurance premiums
Entities, including corporations resident in Canada, may be subject to a 10% federal tax on net insurance premiums paid or payable during the preceding calendar year.
The 10% federal tax on cross-border insurance generally applies where a business or individual purchases such insurance coverage for risks in Canada directly, or where the coverage is obtained on their behalf by a third party. For example, a corporation in Canada may be liable for tax on cross-border insurance if its parent company has acquired global insurance (including excess layers) outside of Canada on behalf of the entire corporate group. This tax may also apply where a business has insurance coverage with an insurer (including any exchange) licensed in Canada, but where the broker or agent is outside Canada.
In general, the 10% federal tax on cross-border insurance does not apply to certain types of insurance, such as life insurance, sickness or personal accident insurance and insurance against marine risks. Relief is also available where a business can clearly demonstrate that the particular type of insurance is effectively unavailable in Canada.
To qualify for this exemption, the business must file an exemption application with the CRA and provide specific information and supporting documentation.
General reminder — PST & insurance premium taxes
Throughout the year, businesses may also face provincial tax liabilities if they have bought insurance coverage from insurers not registered in a particular province. While many provinces offer some tax relief to businesses in light of the COVID-19, these relief programs may differ significantly between provinces.
Provinces with PST on certain insurance contracts
Five provinces currently apply PST to certain insurance contracts (Quebec, Ontario, Manitoba, Saskatchewan, and Newfoundland and Labrador). Similar to the federal rules, a business that enters into contracts with insurers that are not registered in those provinces may be required to self-assess PST on the related insurance premiums. Applicable penalties for non-compliance may be significant. For example, Quebec can impose a penalty equal to 200% of the tax amount.
Provincial insurance premium taxes
Businesses may also be liable for provincial insurance premium taxes as the insured person if the coverage is in a territory or a province where the insurer is not licensed (otherwise, the insurer is generally liable for these taxes). In some cases, the business may be required to pay an increased levy on some of these premiums. For example, Alberta imposes a levy of up to 50% of the premiums, and up to 75% of the premiums if the tax is paid late.
The PST and insurance premium tax rates, rules and remittance deadlines vary by province.
We can help
For more information, please contact your KPMG adviser or one of the following Indirect Tax professionals:
Walter Sisti National Leader - Indirect Tax Services
Information is current to April 14, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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