Canadian Excise Tax on Insurance

The Canadian federal excise tax imposes a 10 percent premium tax on entities resident in Canada, including international corporations, that place insurance against risk in Canada with insurers not authorized by federal or provincial insurance authorities. The tax is also applicable when coverage is placed by a non-resident broker or agent — even if the insurer is authorized in Canada.

The tax furthermore applies to master controlled programs where a non-Canadian parent company purchases insurance for a Canadian subsidiary. The involvement of a
Canadian broker or the Canadian branch of a global broker or underwriter may or may not
change the situation. For the Canadian government, the primary source of coverage takes
precedence.

The local buyer must be able to prove that the Canadian agent/broker was not merely processing the document(s). On admitted master controlled programs, the primary non-resident broker is typically considered the original point of contact and therefore the Canadian government considers the tax applicable.

Canadian tax authorities recently changed the way the federal excise tax on insurance premiums is collected. The tax authorities will no longer forward tax notices to insurance buyers but instead the insurance buyer must file an excise tax return (form B243E) and remit the federal excise tax by April 30 of each year. Previously, the tax authorities invoiced insurance buyers by forwarding to them a Notice of Excise Tax. These notices were derived from the excise tax returns submitted by brokers or insurers.


If the Canadian federal government discovers unpaid premium taxes, they will likely charge the 10 percent tax, plus interest, for current and prior years. They may also disallow the insurance premium (current and prior years) as a legitimate business expense for other tax purposes. Sorting out such problems can be time-consuming and costly.
In addition to the federal excise tax, there are provincial taxes on unlicensed coverage. The tax rates range from two percent to 50 percent. The latter is imposed by the province of Alberta.
Ontario, Quebec and Newfoundland have an additional provincial sales tax on insurance premiums. Ontario charges eight percent on all lines except Auto, for which there is no tax in respect of any premium payment due after March 31, 2004. Quebec levies nine percent for all lines except Auto (for which the rate is five percent). Newfoundland charges 15 percent on all lines. Some lines are exempt in some provinces — automobile, surety, agriculture and reinsurance contracts to name a few.


Some classes of insurance are exempt entirely under the Federal Excise Tax Act. These include Personal Accident, Life, Sickness and Marine. The point -- If you are insured or insuring in Canada check with your accountant.