Retail Sales Tax on Insurance Premiums
Questions and Answers
1. What is the RST rate imposed on premiums for insurance?
A tax rate of 15% will be applied to the taxable premiums for contracts of insurance relating to property, risk, peril or events in the province.
2. What insurance contract premiums will be subject to RST?
The tax will apply to contracts of insurance relating to property, risk, peril, or events in the province. The following types of insurance premiums will be exempted from the RST, as they are defined in the Insurance Companies Act:
Accident and sickness insurance
Marine insurance (other than marine insurance on sport watercraft, when sport watercraft are 20 tons gross or less)
Surety, guarantee or fidelity type insurance are also excluded from tax.
3. What is the effective date of the RST on insurance premiums?
Contracts effective after June 30, 2016 are taxable at 15%. There will be limited retroactivity to April 14, 2016 to impose tax on any cancellation of policies for tax avoidance purposes.
4. What does limited retroactivity to April 14, 2016 for tax avoidance mean? How will this be implemented and monitored by Government?
Cancellations from April 14, 2016 to June 30, 2016 will be subject to review by the Department of Finance to detect and assess any instances of tax avoidance. Subsequent to the July 1st implementation, insurers and insurer’s agents will be required to submit to the Department, for audit purposes, data for all policies issued to new customers, as well as policies cancelled and re-issued to preexisting customers from April 14, 2016 to June 30, 2016, to identify and potentially assess customers attempting to avoid tax.
5. Who should register and remit the RST?
An insurer or insurer’s agent is required to register and collect and remit tax on contracts of insurance relating to property, risk, peril or events in the province. The obligation to collect and remit the RST will rest with the party that bills and collects the premiums, whether the insurer or the insurer’s agent.
Where a person purchases a contract of insurance from an out of province seller not registered to collect the tax , then that person must self-assess and remit the appropriate amount of tax directly to the Department.
6. How do I register for an insurance premium tax account?
A registration form for insurance premiums tax must be completed and filed with the Department of Finance. This form is available on the Government’s website and has been sent directly by mail to all insurance companies and insurance brokers currently registered with Service NL. Completed registration applications can be filed by mail, fax, or email to firstname.lastname@example.org.
There will be an option to file returns and make account payments through the online Newfoundland and Labrador Electronic Tax Service. This will require the completion and filing of the following two forms, along with your registration: the Application to e-File Returns and Payments and the Pre-Authorized Debit Agreement. These forms are both available on Government’s website and have been forwarded along by mail with the registration form.
Following the processing of registration, you will be issued a RST collector license and a tax remitter number. If availing of the e-file option, the necessary information (ID and PIN numbers) to access your e-file account will be forwarded separately.
Specific inquiries related to registration and e-file set up and access should be forwarded to the Registrar at 709-729-1786 or email@example.com.
7. What fees and charges, which are invoiced to a customer in connection with a taxable insurance contract, are subject to tax?
All dues, assessments, transaction fees, and other consideration charged by the insurer or the insurer’s agent are taxable, except as noted below.
If the fees or charges apply to both taxable and exempt insurance contracts, they are subject to tax in proportion to the taxable insurance component.
Interest, finance charges, service charges, and underwriting fees that are clearly broken out separately on the invoice are not taxable.
Non-Sufficient Fund (NSF) charges are not taxable.
8. Will the tax apply to First Nations? What evidence will the Government consider sufficient supporting documentation for the industry to not charge the tax?
Insurance contracts purchased by Status Indians or Indian Bands covering their property situated on a reserve or for risks, perils or events that relate wholly to a reserve are not taxable, including residential homes or autos. Insurance providers are responsible for obtaining the Indian Status Identification Number issued by AANDC. The exemption from provincial taxes on a reserve under the federal Indian Act does not extend to corporations owned by Status Indians or Indian Bands. Therefore, insurance contracts purchased by corporations owned by Status Indians or Indian Bands covering property situated on a reserve or for risks, perils or events that relate to a reserve are taxable.
9. How will the Government tax policies across multiple jurisdictions?
Insurance contracts may relate to risks, perils and events that may occur both inside and outside of Newfoundland and Labrador. Tax should only be calculated on the portion of the payment relating to property, risk, peril, or events in the province in accordance with the formula below. The allocation to be used in the formula is to be determined on the basis that is most reasonable to the circumstances such as:
the insured value of property in the province as a percentage of the total value of the property insured in all jurisdictions; and
for contracts covering employees both inside and outside the province, the portion that covers province based employees.
Taxable Portion of Insurance Contract = P/I x C
P= total monetary value of property, risk, peril or events covered by the contract of insurance which are in or relate to the province;
I = total monetary value of property, risk, peril or events covered by the contract of insurance; and
C= consideration paid for the entire contract of insurance.
10. Will there be a requirement for the RST to be disclosed separately on the insurance contract and invoice?
Yes, the RST on insurance premiums must be shown as a separate item on any receipt, bill, invoice, or other document issued by the insurer or insurer’s agent.
11. How do I file the required returns and remit the RST?
Following registration, registrants will receive a personalized tax return for the purpose of reporting and remitting insurance premiums tax collected. Filing instructions will be included on the return and there will be an option to file returns and make account payments online through the Newfoundland and Labrador Electronic Tax Service. The return, along with the payment of tax due, must be received by the Department of Finance within 20 days following the reporting period.
12. Does the RST paid by companies registered for the HST qualify as an input tax credit on their HST return?
No, the 15% RST charged is not the Harmonized Sales Tax. Consequently, it is not eligible as an input tax credit on the HST return.
13. When will the first return and remittance of RST, for the month of July 2016 (period ending July 31, 2016) be due to the Department?
The due date of the tax return for the month of July 2016, along with the payment of the tax for that month, will be extended to September 20, 2016 for that month only to allow for the transition implementation of the new tax program. For all subsequent months, registered remitters will be required to file monthly returns, and remit the tax collected within the month, by the 20th of the following month (i.e. August 2016 return due on or before September 20, 2016).
14. Will the RST apply to endorsements for policies effective prior to July 1, 2016?
No, there will be an exemption for endorsements to contracts of insurance that have an effective date prior to July 1, 2016. Endorsements to policies with an effective date after June 30, 2016 will attract the tax.