This information will help you understand how Retail Sales Tax applies to insurance premiums after June 30, 2010.
Tax on Insurance Premiums
Ontario Retail Sales Tax (RST) currently applies at a rate of 8 per cent to premiums for certain types of insurance, including group insurance, contributions paid into funded plans or on benefits paid out of unfunded plans as well as payments made into insurance schemes or compensation funds established under an Act of Canada or Ontario.
Ontario's Transition to the HST
In the 2009 Ontario Budget, the government announced a comprehensive tax package that includes moving to an HST at a rate of 13 per cent effective July 1, 2010. Generally, insurance premiums are currently exempt from the federal Goods and Services Tax (GST) as financial services and the treatment under HST will be the same as under GST.
Maintaining RST on Insurance Premiums
Ontario will continue its application of tax at a rate of 8 per cent on the same types of insurance premiums currently taxed under RST. Insurance that is currently exempt from RST, such as automobile insurance premiums, will continue to be exempt from RST after June 30, 2010. Certain costs and fees, such as administration fees for benefit plans, will be exempt from RST as they are taxed under HST.
Registration to Collect RST on Insurance Premiums
Effective June 30, 2010, all RST vendor accounts were closed and businesses primarily engaged in insurance activities (identified brokers) were automatically re-registered with the Ministry of Finance and given a vendor permit to collect and remit RST.
Tax return filing frequencies that were in place for RST returns are maintained after June 30, 2010. All other businesses that collected RST on insurance premiums prior to July 1, 2010, but are not primarily engaged in insurance activities must contact the Ministry of Finance to register and continue collecting and remitting RST.
Businesses that are required to register include:
- holders of group insurance to whom premiums are paid by persons whose risks are covered by the policy (e.g., a retailer who holds a group policy and then sells an insurance policy to an individual on a purchase)
- planholders who self-administer funded or unfunded benefits plans where there is no third party administrator of the plans (e.g., employers that pay premiums and/or collect premiums from their employees for health and welfare benefits plans)
- administrators or trustees of funded or unfunded benefits plans
- insurers and insurance agents licensed under the Insurance Act, or registered brokers as defined in the Registered Insurance Brokers Act
- persons to whom contributions are paid for insurance arrangements or compensation funds established by or under a federal or provincial Act
- any other person who sells taxable insurance contracts (e.g., banks and other financial institutions, motor vehicle dealers).
How to Register
If you are required to re-register or are unsure if you are required to be registered to charge and collect RST on taxable insurance premiums, you may contact the Ministry of Finance by:
- Calling 1 866 ONT-TAXS (1 866 668-8297).
- After hearing the standard greeting you will be asked "What program are you calling about?" Your response should be: "Retail Sales Tax".
- You will then hear "Do you have a business number or a vendor permit?" Your response should be: "Operator".
- At this point your call will be put through to a live ServiceOntario operator who will either record the information required to re-register your business or take your information and have a representative contact you to help you determine if you are required to register.
- Completing the Application for Vendor Permit [PDF - 432 KB]. This form may be printed and mailed to: Ministry of Finance, PO Box 623, Oshawa ON L1H 8H7.
Under the RST Act, vendor compensation is payable for the 12 month period beginning April 1 of each year. Vendors collecting RST on insurance premiums are eligible for the general RST vendor compensation from April 1, 2010 to June 30, 2010. In the 2010 Ontario Budget, the government provided a special transition period from July 1, 2010 to March 31, 2011 to ensure the annual maximum vendor compensation of $1,500 is maintained for that transition year. Vendors that collect RST on insurance premiums may claim compensation as follows:
- maximum of $1,125 for the period July 1, 2010 to March 31, 2011, and
- maximum of $1,500 for each fiscal year thereafter.
Information on how RST applies to insurance premiums can be found by accessing RST Guide 519 - Insurance - General Information on the Ministry of Finance's website.
For More Information
The Canada Revenue Agency administers the HST. Visit their website at www.cra.gc.ca/gsthst or call 1 800 959-5525 for more information.