The bulletin lists various taxable and non-taxable insurance contracts and explains how the tax should apply to new and existing insurance contracts. This budget measure will require many entities, including some brokers, to register as a vendor for Manitoba RST purposes.
Insurance contracts subject to RST
Manitoba's 2012 budget and the bulletin note that, effective July 1, 2012, RST will apply to the following types of insurance contracts:
- Group insurance contracts (including group life but not group health insurance)
- Insurance on land and buildings as well as goods located in Manitoba
- Liability and credit insurance
- Baggage and trip cancellation insurance
- Builder's risk, title and some mortgage insurance.
Manitoba notes that RST will generally apply where the insured person is a resident of Manitoba or the premiums are paid in respect to property located in Manitoba.
Examples of non-taxable insurance contracts include reinsurance contracts, health and disability insurance, and contributions and benefits paid to and from funded and unfunded benefits plans.
The bulletin also notes that some insurance contracts will be subject to proration rules, including taxable insurance contracts that relate to risks inside and outside of Manitoba and some insurance contracts that contain both taxable and non-taxable components.
Insurance companies across Canada have to act quickly to determine whether they are subject to this proposed new measure. These companies will have to consider:
- Do we have to register under the RST system, and if so, how and when?
- Do we sell taxable insurance contracts subject to Manitoba's 7% RST? Do we sell insurance contracts subject to the new proration rules?
- Are the insured persons of these taxable insurance contracts residents of Manitoba?
- Are the premiums paid in respect to property located in Manitoba?
- How will the RST apply to premiums of new and existing taxable insurance contracts? Do we have to re-invoice some clients?
- Will our systems be ready to accommodate this new tax collection requirement?
- What are the filing and other new requirements in relation to this new proposed measure?
New and existing insurance contracts
Based on the bulletin, Manitoba's 7% RST will generally apply to new and existing taxable insurance contracts as follows:
- RST will apply on all insurance premiums paid under a taxable insurance contract entered into after June 30, 2012
- For taxable insurance contracts that straddle July 1, 2012:
- If paid monthly, RST applies on the first full monthly premium after June 30, 2012
- If paid annually, RST applies on the portion of the contract covering the period after June 30, 2012 (even if premiums are paid prior to this date).
Insurance companies will be required to re-invoice in July 2012 the RST payable on previously billed and paid annual/lump sums for the portion of taxable insurance contracts that applies after June 30, 2012 and remit the tax on their next RST return. The bulletin noted that in some cases, insurance companies may be able to add the tax owing as part of the renewal of the insurance contract and remit the tax on their next return
From a practical point of view, it is unclear based on the bulletin when an insurance company may be able to include the tax owing as part of the renewal process, rather than re-invoicing separately. Further clarification from the government may be needed.
RST registration requirements
The bulletin notes that insurance companies that are authorized to sell insurance in the province under the Insurance Act must register to collect and remit RST on taxable insurance contracts sold directly by them or through their agents.
Licensed special brokers that represent unlicensed insurance companies are also required to register for RST and collect and remit the tax on taxable insurance contracts.
Manitoba notes that the draft bulletin is intended to serve as a guideline and is not all-inclusive. As such, further details and rules may be clarified in the upcoming amendments to the legislation.
For more information, contact your KPMG adviser.