Canada - English

Manitoba RST on Insurance Contracts Starts July 15 

Canadian Tax Adviser

 

July 03, 2012

 

Insurance companies, brokers and group policy holders now have less than a month to adjust their systems for Manitoba’s new tax measure that will apply Manitoba’s 7% retail sales tax (RST) to many insurance contracts effective July 15, 2012. Over the last two months, Manitoba has made several changes to the proposals originally introduced in its 2012 budget and a draft bulletin released on April 17, 2012. For example, Manitoba recently confirmed the exemption from RST for insurance in respect of the disability, critical illness or accidental death and dismemberment of an individual (other than under a group insurance contract). The measures were passed into law on June 14, 2012.

Some insurers located outside Manitoba may be surprised to learn that they may be required to register for Manitoba RST even if they have opted to have agents or brokers selling their contracts collect and remit the tax on their behalf.

 

What’s new since the original announcement?

 

Some of the most important changes and clarifications in the legislation and the final RST Bulletin No. 061 “Insurance” since the original announcement are:

 

  •  An new implementation date of July 15, 2012 (extended from July 1, 2012)
  •  A exemption confirmed in the law for insurance in respect of the disability, critical illness or accidental death and dismemberment of an individual (other than under a group insurance contract)
  •  An obligation for group policy holders to collect tax on premiums payable to the holder and remit it to the vendor
  •  New rules to determine when tax is payable for some contracts that straddle the July 15, 2012 implementation date
  •  New details as to when tax is payable for contracts with definite or indefinite terms
  •  More examples of taxable and non-taxable insurance contracts
  •  Changes to registration requirements and an option, if applicable, to have a qualifying broker or agent collect and remit the tax on vendor’s behalf
  •  A reminder that some insurance companies and brokers will have to self-assess RST on some purchases.

 

Please note that Manitoba has withdrawn the proposed 90% proration rule where contracts contain taxable and exempt insurance products and revised the transitional tax application (two measures originally included in the draft bulletin of April 17, 2012).
 
Also, Manitoba verbally confirmed that an insurer located outside Manitoba may be required to register and file returns even though the insurer’s obligation as a vendor to collect and remit the tax may be fulfilled by another person (e.g., a broker).

 

Action points
Insurance companies, brokers and group policy holders across Canada should determine whether they have implemented the new measures correctly in their systems effective July 15, 2012. If your organization is affected, here are a few items, among others, for you to consider based on the recent changes and clarifications:

 

  • Do you have to register under the amended Retail Sales Tax Act?
  • Insurance contracts
    • Are you selling taxable insurance contracts?
    • Do you sell insurance contracts to residents of Manitoba or insure risks in the province?
    • Is so, are these contracts subject to any RST exemption?
  • Tax payable on insurance contracts
    • When is tax payable on your taxable insurance contracts?
    • Do these contracts have definite or indefinite terms?
    • Are any of these contracts group insurance contracts?
  • Who invoices and collects the premiums for your taxable insurance contracts: the insurance company, the brokers or any other person?Who will remit the 7% RST on those taxable insurance contracts?

 

For more information, contact your KPMG adviser.

Publications

Canadian companies may be interested in these recent publications: