Cross-Border Insurance — April 30 Deadline for 10% Tax

April 13, 2017 No. 2017-22

Some businesses are required to pay, by April 30, 2017, a federal tax of 10% on certain insurance premiums. This tax can apply to businesses that have purchased insurance coverage from insurers outside Canada or were covered under a global insurance policy acquired from insurers outside Canada by a parent company in 2016. Generally, the federal tax applies where the 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. This tax could also apply where a business has insurance coverage with an insurer licensed in Canada but the broker or agent is outside Canada.

April 30 deadline for 10% federal tax

A corporation resident in Canada must pay a 10% tax on the net insurance premiums paid or payable during the preceding calendar year by April 30, in certain circumstances. In general, this tax will apply where a corporation resident in Canada enters into an insurance contract (or on whose behalf such a contract is entered into) against risk within Canada with an insurer (or any exchange) that is not authorized under the laws of Canada or any province to transact the business of insurance.

This rule under the Excise Tax Act also applies to a non-resident corporation carrying on business in Canada. For example, a corporation in Canada may be liable to pay the tax where the parent company acquired global insurance outside of Canada on behalf of the entire corporate group.

A business may also be required to self-assess the 10% tax on insurance premiums related to an insurance contract that is entered into (or entered into on its behalf)

Page 1 of 3

TaxNewsFlash – Canada April 13, 2017 Cross-Border Insurance — April 30 Deadline for 10% Tax No. 2017-22

through a broker or agent outside Canada with an insurer, including any exchange, in Canada.

In general, the 10% federal tax does not apply to certain types of insurance, such as life, sickness or personal accident insurance and insurance against marine risks. The law also provides relief in some cases where a business can clearly demonstrate that the insurance is effectively not available in Canada. To qualify for this exemption, the business must file an exemption application with the CRA and provide specific information and supporting documentation.

Don't forget provincial sales tax and insurance premium taxes

Buying insurance coverage from insurers not registered in a particular province may also lead to provincial tax liabilities for some businesses.

Four provinces currently apply a sales tax on certain insurance contracts (Quebec, Ontario, Manitoba, and Newfoundland and Labrador). Similar to the federal rules, a business that enters into contracts with insurers not registered in the province may be required to self-assess a provincial sales tax on the related insurance premiums. The sales tax rates, remittance deadlines and related non-compliance penalties vary by province.

A business may also be liable to pay insurance premium taxes as the insured person where the coverage is in a territory or a province in which 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. Again, the insurance premium tax rates, rules and remittance deadlines vary by province and may be different than the ones for provincial sales taxes. In some cases, exceptions or lower rates can apply through the use of special brokers in the province. For more information, see TaxNewsFlash-Canada “Special Insurance Premium Taxes – Meet Your Obligations, January 31, 2017.

We can help

Your KPMG adviser can help you manage tax obligations related to insurance contracts. The federal and provincial laws that regulate insurance policies and related taxes are complex and some tax obligations and requirements fall on insured persons (rather than insurers). We can help you review your various insurance contracts and specific tax obligations as well as determine if any premiums qualify for reduced tax rates or exemptions. In some cases, it may be possible to structure your insurance coverage to limit the effect of these special taxes and levies. For details, contact your KPMG adviser.

Page 2 of 3

TaxNewsFlash – Canada April 13, 2017 Cross-Border Insurance — April 30 Deadline for 10% Tax No. 2017-22

kpmg.ca

Information is current to April 12, 2017. The information contained in this TaxNewsFlash-Canada 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.

© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Page 3 of 3