Global

Details

  • Service: Tax, Global Indirect Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 8/10/2012

Canada - Insurance companies face indirect tax changes, CRA audits 

August 10: Canadian insurance companies are facing changes to indirect tax laws and administrative policies that may make it difficult for some entities to properly calculate and pay the right amount of taxes and fully comply with all indirect tax rules. Significant amounts of money may be lost to non-compliance penalties or simply left as unclaimed recoveries.

Changes to indirect tax laws include British Columbia’s transitioning back to GST* and PST, Quebec further harmonizing its QST rules to the GST rules, and Manitoba applying RST on some insurance contracts, along with other upcoming legislative amendments.


*GST: goods and services tax; PST: provincial sales tax; QST: Quebec sales tax; RST: retail sales tax; HST: harmonized sales tax

CRA audits

The Canada Revenue Agency (CRA) has started to audit and assess insurers for GST / HST concerning reinsurance with related parties. Insurers must comply with amendments to the law made in response to the State Farm decision in 2005. These amendments require insurers to self-assess tax on all deductible expenses for supplies coming from outside Canada, with certain exceptions.


The law was also amended to extend the audit period for the new self-assessment rules to seven years (from the general four-year audit period). Insurers that have not yet been audited under these new self-assessment rules need to prepare to handle the CRA’s enquiries related to this reinsurance issue.


The CRA is also focusing its audits on other items including allocation methodology, distribution costs of segregated funds, intercompany transactions and “arranging for” sale of insurance.


With a significant number of new GST / HST auditors, the CRA appears to be increasing its audit activities for all businesses including insurers.


Read an August 2012 report prepared by the KPMG member firm in Canada: Insurance Companies Facing More Indirect Tax Changes and CRA Audits




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