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The impact of HST on Insurance Premiums in Ontario


Richard Weber on September 22, 2010 in Harmonized Sales Tax (HST)

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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).