Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON, K1A 0L5
Case Number: 172628
Subject: EXCISE RULING Tax on insurance premiums under Part I of the Excise Tax Act
Thank you for your letter of [mm/dd/yyyy] concerning the application of the Part I tax on insurance premiums of the Excise Tax Act.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
STATEMENT OF FACTS
We understand; […][XYZ] as part of normal operations presents exhibitions to the public in which works of art have been loaned from various owners/museums around the world.
Often a foreign lender will determine that [XYZ] offered insurance/indemnity does not meet all their requirements. In these cases typically the owner/lender will specify a domestic insurance provider (domestic to the foreign lender not an authorized Canadian insurance provider) be used for the loan with premiums accrued to the borrower.
In loan agreements [XYZ] agrees to pay the amount of the insurance taken out by the foreign lender for the entire period during which the works are put at its disposal, and to pay the broker directly the amount of the insurance premiums on presentation of the brokers invoice. The broker of the foreign lender shall provide [XYZ] with a duly certified copy of the insurance policy no later than one (1) month before departure of the works.
Upon request, on [mm/dd/yyyy], [XYZ] provided copies of the certificates of insurance […]. On the respective certificates the assured was indicated as:
The lender(s) &/or […] &/or [XYZ],
You would like to know “whether [XYZ] would be considered to be a “…person resident in Canada by whom or on whose behalf a contract of insurance, other than a contract of reinsurance, is entered into or renewed against a risk ordinarily within Canada…” as is outlined in paragraph 5 of the Excise Taxes and Special Levies Memorandum – Special Levies – Insurance Premiums?"
Also [XYZ] requested a refund of $[…] and cancellation of the interest in arrears and other penalties.
In addition the [XYZ] request exemptions of future, similar transactions.
Based on the facts set out above, we rule that [XYZ] is a person resident in Canada on whose behalf a contract of insurance was entered into against a risk ordinarily in Canada with an insurer not incorporated under the laws of Canada or of any province or not formed in Canada and subject, in addition to any other tax payable under any other law, a tax of ten percent on the net premiums paid or payable during the immediately preceding calendar year in respect of that insurance.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to Part I of the Excise Tax Act (ETA), regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
Insurance certificates […], and the information provided in your letter of [mm/dd/yyyy] indicate the insurance provided which [XYZ] received and was invoiced for, was procured for [XYZ] although not directly by [XYZ].
The Part I federal excise tax on insurance premiums other than marine in ss 4.(1) of the ETA clearly indicates that the tax is applicable to a person resident of Canada on “whose behalf a contract of insurance” is entered into with any insurer not authorized under the laws of Canada or of any province to transact the business of insurance. Although the insurance was purchased by other that [XYZ] it was purchased on behalf of [XYZ] and paid for by [XYZ].
Subsection 88(1) of the ETA allows application for the waiver or cancellation of interest or penalty. These fairness requests are handled on a case-by-case basis by the local Tax Services Office, therefore we will not be providing you with a ruling on this matter. You are required to write to your local Tax Services Office to request fairness.
As well, [XYZ] requests for an exemption from the requirement to pay the 10% insurance premium tax on such similar transactions in the future.
The Part I tax on insurance premiums imposed by subsection 4(1) of the Excise Tax Act does not apply to the following contracts of insurance:
a. Contracts of life insurance, personal accident insurance, sickness insurance and insurance against marine risks are exempt from tax.
b. Contracts of insurance against nuclear risks to the extent that such insurance against nuclear risks is not, in the opinion of the Commissioner, available in Canada. This type of insurance is not subject to tax provided evidence has been submitted, which is satisfactory to the Canada Revenue Agency (CRA), that such insurance is not available in Canada.
c. Any contract of insurance which is not, in the opinion of the Commissioner, available in Canada.
CRA's administrative policy states when a certain class of insurance normally subject to the 10% insurance premium tax is not available in Canada, a person may apply for an exemption. The CRA will consider only the following two reasons as acceptable for granting an exemption:
• the particular class of insurance was not available from authorized insurers or
• there was a lack of market capacity at that particular time for that class of insurance
An application for exemption may be made using form E638, Application for Exemption From Premium Taxes Imposed Under the Excise Tax Act – Part 1 outlining the type of insurance purchased and the reasons it could not be obtained in Canada. This information may suffice to qualify for an exemption however it is requested that information of declined coverage be provided by submitting a completed form E638A, Statement of Availability or Declination from Authorized Insurers – Tax on Insurance Premiums (Part I of the Excise Tax Act) and/or declination letters from Canadian authorized insurers. These forms or letters should include sufficient details to support why coverage was declined.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 952 0048.
Michael Ryder
Rulings Officer
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate