Canada: Deadline for tax on cross-border insurance is 30 April 2020
Canada: Deadline for tax on cross-border insurance
The federal tax applicable to certain cross-border insurance premiums is due 30 April 2020.
This federal tax—imposed at a rate of 10% on insurance premiums—can apply with respect to:
- Businesses that have purchased insurance coverage from insurers outside Canada in 2019
- Businesses covered under a global insurance policy acquired by a parent company in 2019 from insurers outside Canada
The federal tax on cross-border insurance is distinct from the provincial sales tax (PST) liabilities and insurance premium taxes that businesses may also face throughout the year if they purchased insurance coverage from insurers that are not registered in certain provinces where they operate. 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.
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 situations, 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 federal government announced certain indirect tax (GST/HST) relief measures to help businesses in light of the coronavirus (COVID-19) pandemic; however, this relief does not apply to the federal 10% tax on insurance premiums.
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 COVID-19, these relief programs may differ significantly between provinces.
Read an April 2020 report prepared by the KPMG member firm in Canada
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