Canada: CRA revised policy on GST-exemption of insurance intermediation by “incidental sellers”

Updated CRA guidance on supplies of insurance intermediation services that generally are exempt from goods and services tax (GST)

CRA revised policy

The Canada Revenue Agency (CRA) updated its guidance on supplies of insurance intermediation services that generally are exempt from goods and services tax (GST).

Retailers, automotive dealers, bankers, travel agents, and other “incidental sellers"—as that term is used by the CRA—therefore need to review the updated guidance on supplies exempt from GST.

In a recent publication, the CRA confirmed that, when a person whose primary business is not insurance facilitates the sale of insurance on behalf of the insurer, the fees would generally be consideration for an exempt supply of a financial service. The CRA reasoned that the incidental seller is arranging for the supply of a GST-exempt financial instrument (i.e., the insurance policy). The CRA further added that when the seller is doing more than arranging for the supply of insurance, it is a question of fact as to whether those fees are still tax-exempt.

The CRA previously considered such fees as consideration for taxable supplies because it found that the predominant element to the supplies was a promotional and administrative service. However, the CRA changed its position based on the principles from two recent court decisions.

KPMG observation

Taxpayers need to monitor any changes to the CRA's position on "arranging for" GST-exempt services, as it could affect their input tax credit claims. Tax professionals will be watching to see if the CRA updates documents related to "arranging for" GST-exempt services (such as the GST/HST Technical Information Bulletin B-105 (February 2011)). This bulletin—which provides the CRA's position on what "arranging for" means in the definition of "financial service"—has been labelled as being “under review” for several years on the CRA's website. The CRA also previously circulated drafts of a special bulletin specific to the insurance industry, which indicated that supplies by incidental sellers are taxable.

Read a December 2021 report prepared by the KPMG member firm in Canada

 

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