Agence du revenu du Québec v. Assurances générales Desjardins Inc., 2022 QCCA 57

When the taxpayers, which were property-casualty insurers, received premiums from a customer before the policy took effect, they remitted the insurance premium tax (“IPT”) received by them on such collection on the basis of the month in which the policy came into effect rather than the earlier month of receipt. S. 523 of the Quebec Sales Tax Act (“QSTA”) required that a person receiving payment of a policy premium collect the tax thereon and relevantly required such tax to be remitted to the Minister. QSTA s. 527 relevantly required all tax collected by a registrant to be held and remitted as mandatary for the Minister. S. 24 of the Quebec Tax Administration Act provided:

Every person who deducts, withholds or collects an amount under a fiscal law is bound to pay to the Minister, at the date fixed by such law, or in accordance with the provision for such payment, an amount equal to that which the person must remit under the said Act.

The same obligation exists in respect of any amount that a person, whether in good faith or in bad faith, deducts, withholds or collects, believing or claiming that he is acting under a fiscal law.

In finding that the taxpayer had been properly assessed for failure to remit the IPT based on the month of receipt, the Court stated (at paras. 24, 26, TaxInterpretations translation):

Once the insurer received the premium from its client, it accepted the payment, even if it kept a separate record of the amount collected until the policy was in force. The client could consider that the premium, including the IPT, had been paid since the money came out of the client's account. …

Regarding the IPT, section 527 of the QSTA clearly provides that the insurer, in its capacity as agent, must account for the tax collected in the preceding calendar month at the end of the month. Whether or not the premium is due does not change the fact that the insurer has collected the IPT amount paid by the insured and must therefore remit it to the Minister.

When the taxpayers, which were property-casualty insurers, received premiums from a customer before the policy took effect, they remitted the insurance premium tax (“IPT”) received by them on such collection on the basis of the month in which the policy came into effect rather than the earlier month of receipt. The relevant QSTA provisions, which were broadly similar in this regard to ETA ss. 225(1) – A(a), 228(2) and 222(1), required that a person receiving payment of a policy premium collect the tax thereon as agent for the Minister and remit such tax to the Minister. The Court found that these provisions clearly triggered an obligation to remit the tax collected when it was received rather than the later time when the policies took effect.

In going on to confirm the imposition of penalties on the taxpayers pursuant to s. 59.2 of the Tax Administration Act, (generally calculated as 15% of the amounts they had remitted one month late), the Court stated (at paras. 34, 36-37, TaxInterpretations translation):

The defence of due diligence allows for the avoidance of administrative penalties imposed by a statute where an error of fact is made in good faith, but not where there is an error of law. …

The tax system is based on the principle of self-assessment and therefore transparency on the part of the taxpayer. To allow the taxpayer to escape the consequences of failing to meet its obligations by proposing a different interpretation of the legislative provisions would open a loophole that is difficult to reconcile with this principle.

In fact, the respondents chose to cash the amounts transmitted without characterizing them as premiums and, by the same token, without remitting the IPT collected to the Minister. This decision, made without bad faith, by weighing various administrative and legal factors, remains contrary to the obligations imposed by the QSTA.