Canada: Reminder of 30 April 2021 deadline, tax on cross-border insurance

Canada: Tax on cross-border insurance

The Canadian federal tax applicable to certain cross-border insurance premiums is due 30 April 2021.

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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 2020
  • Businesses with insurance coverage from a global insurance policy that an affiliated company acquired in 2020 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 licensed in certain provinces where they operate. Five provinces 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. Otherwise, a business may face significant penalties for non-compliance. For example, Quebec can impose a penalty equal to 200% of the tax amount.

Businesses may also be liable for provincial insurance premium taxes or special levies 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.

KPMG observation

Businesses need to be aware that the 10% federal tax and PST may also apply to insurance coverage purchased over electronic distribution platforms from insurers outside Canada or insurers that are not registered in the particular province.

Read an April 2021 report prepared by the KPMG member firm in Canada

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