2015 Update
Rules after Implementation of HST
When Ontario joined the HST system on July 1, 2010, it substantially eliminated its PST on goods and services. However, it retained its PST of 8 percent on insurance premiums, as before. Automobile insurance premiums will remain exempt from this tax. Consequently, insurance premiums as financial services are exempt under the HST, but taxable at 8% for PST.
Input Tax Credit
The 8 percent tax PST does not form part of the HST and therefore does not qualify for an input tax credit. It will continue to be a cost to the insured party.
Pre-Harmonized Sales Tax (HST) rules
Before the implementation of the HST, Ontario Retail Sales Tax (RST) applied at a rate of 8 percent to premiums for certain types of insurance, including group insurance, contributions paid into funded plans as well as benefits paid out of unfunded plans. Automobile insurance premiums were exempt from the RST. Insurance premiums in general were also exempt from the federal Goods and Service Tax (GST) as they are considered financial services.
Rules after implementation of HST
As a result of the introduction of HST in July 1, 2010, the Ontario government announced that it would continue its application of tax at the rate of 8 percent on the same types on insurance premiums that were subject to the RST. Automobile insurance premiums will remain exempt from this tax.
In addition, insurance premiums, as financial services, that were exempt from the GST will receive the same treatment and continue to be exempt under the HST.
Input tax credit
The 8 percent tax is a provincially imposed tax and does not form part of the HST. Accordingly, similar to the conditions prior to introduction of the HST, this tax does not qualify for an input tax credit and will continue to be considered a cost to the insured party.
Purchase Exemption Certificates
Some purchasers of insurance products may be entitled to an exemption from the RST. To claim the exemption, the purchaser must provide the insurance provider with a valid Purchase Exemption Certificate (PEC).
