Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Client Address]
Case Number: 245902
Business Number: [...]
Dear [Client]:
Subject: GST/HST ruling
Sale of travel insurance with [...][vacation services]
Thank you for your correspondence of [...] (“Incoming Letter”), concerning the application of the goods and services tax/harmonized sales tax (“GST/HST”) to sale of travel insurance by [...] (“Service Provider”). We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (“ETA”) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. Service Provider is a corporation located in [...] that provides […][vacation services] [...].
2. Your Incoming Letter indicated an intention to partner with [...] (the “Agent”) in offering travel insurance to […][customers] […]. Since then, we understand that you are now offering this travel insurance.
3. The travel insurance is underwritten by [...] (the “Insurer”). [...].
4. The Insurer is licensed [...] as an accident and sickness insurer (among other coverages).
5. When [customers] make a booking online to acquire [vacation services], they may optionally choose to acquire a travel insurance policy under the Agent’s [...] Plan (the “Policy”). If selected, the premium amount is added to the booking summary, identified separately as “travel insurance”.
6. There is an information link beside the option to select the travel insurance, which provides the [customer] with a link to the [...] website [...] where the full Policy terms and conditions can be obtained [...]. The [customer] cannot acquire the insurance separately through the Agent by linking to the Agent’s [...] website, however. The [customer] has no interaction with the Insurer in order to acquire the insurance however if the [customer] has more in-depth questions prior to acquiring the insurance, they are referred to a representative of the Agent. You have indicated that Service Provider provides the [customer] with a general plan summary document (an example of which you provided to us).
7. Generally, each Policy provides trip cancellation coverage, medical expense and evacuation coverage along with other incidental coverages.
8. When a [customer] has chosen to acquire the insurance and has paid the amount owing to Service Provider, the policy is considered to have been issued. The policy is attached to the booking confirmation that Service Provider supplies to the [customer]. There is no intermediary step, the [customer] is not transferred to another website in order to complete the insurance purchase, nor does the Agent or Insurer need to approve the insurance issuance.
9. Section IV of the Policy states that coverage begins on the day after the date the required premium for the Policy in relation to the Insured’s trip is received by [Service Provider]. The policy premium is payable by the [customer], and paid to Service Provider together with payment for the [vacation services].
10. [...]
11. [...]
12. In the event of filing a claim, the [customer] generally deals with the Agent. However Service Provider may supply further information to the Agent to facilitate processing of the claim.
13. Service Provider also entered into a [...] (“Program Agreement”) with the Agent [...], under which Service Provider [...] agrees to sell the Insurer’s Policies exclusively in return for a 25% commission. Service Provider is authorized to deduct its commission from the premiums it collects from its [customers] prior to remitting the net premiums to the Agent.
14. Under the Program Agreement, once the [customer] chooses to acquire the insurance, they must do so through Service Provider, together with the acquisition of [vacation services]. The insurance premium is calculated as a percentage of the [...] fees.
RULING REQUESTED
You would like to know whether GST/HST applies to the insurance charges that Service Provider collects from [customers], and whether HST applies to the commissions it earns from the Agent.
RULING GIVEN
Based on the facts set out above, we rule that GST/HST does not apply to the insurance charges that Service Provider collects from [customers], nor on the commissions it earns from the Agent.
EXPLANATION
In general, supplies of property and services are taxable supplies for GST/HST purposes unless the supply is an exempt supply listed in Schedule V. A supply of [vacation services] such as supplied by Service Provider, for example, is generally a taxable supply. On the other hand, the issuance of an insurance policy in Canada by an insurer is generally an exempt supply.
Determining the supply
There is more than one element in the service being offered to a [customer] on Service Provider’s website, and all elements chosen by the [customer] are invoiced together by Service Provider. Since there are multiple elements provided to the [customer], we must first determine whether the provision of insurance forms part of the supply of [vacation services] or is a separate supply.
In this particular case, we view the insurance as being supplied separately from the Service Provider’s supply of [vacation services] to its [customers]. Based on the information provided, it is the Insurer that is issuing an insurance policy to the [customer] and Service Provider is making a separate supply of [vacation services]to the [customer]. The insurance is an option that can be acquired separately from the accommodation, and is itemized separately on the invoice. For more information on determining whether there is one or more supplies, refer to GST/HST Policy Statement P-077R2, Single and Multiple Supplies.
Tax status of supply
Although the supply of [vacation services] may be taxable, we have to look at the supply of the insurance on its own as it is a separate supply. A supply of a financial service is generally exempt.
A “financial service” is defined for GST/HST purposes to include the issuance, granting, allotment, acceptance, endorsement, renewal, processing, variation and transfer of ownership of a financial instrument. A “financial instrument” for GST/HST purposes includes an insurance policy.
An “insurance policy” is defined for GST/HST purposes to include (among other things) a policy or contract of insurance that is issued by an insurer (other than certain warranties in respect of the quality, fitness or performance of tangible property). An “insurer” is likewise defined to mean a person who is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an insurance business or under the laws of another jurisdiction to carry on in that other jurisdiction an insurance business.
The Policy described in the facts falls within the above definition of an insurance policy, and the Insurer is an insurer for GST/HST purposes. As such, the Insurer’s provision of insurance under the Policy is an exempt supply of a financial service and the Insurer is not required to charge and collect GST/HST on the consideration it receives (i.e., the insurance premiums).
To whom the supply is made
Since it is Service Provider (not the Insurer) that invoices the [customer] for the supply of the insurance, it must be determined to whom the Insurer is supplying insurance. For GST/HST purposes, a supply is made to a recipient. A “recipient” of a supply means, where consideration for the supply (e.g., the insurance premium) is payable under an agreement for the supply (e.g., the Policy), the person who is liable under the agreement to pay that consideration. In this case, the [customer] is defined as the Insured in the Policy and coverage does not begin until the [customer] pays the insurance premium to Service Provider. Therefore, the [customer] is a recipient of the supply of the insurance by the Insurer. That is, the Insurer is making an exempt supply of a financial service to the [customer]. This means that the Insurer is not required to collect GST/HST on the insurance premiums payable by the [customer].
When Service Provider invoices the [customer] for the insurance premium payable by the [customer] to the Insurer, Service Provider is merely collecting and remitting the premiums on the [customer’s] behalf, and so is also not required to charge GST/HST on that amount. Service Provider is not making a separate supply to the [customer] when doing so, and the insurance is not part of the [vacation services] supplied by Service Provider.
Commissions earned by Service Provider
An insurance intermediary may provide services to an insurer or to another person that has an agreement with an insurer.
The supply of acting as an insurance intermediary may constitute an exempt supply of a financial service for GST/HST purposes where the intermediary is “arranging for” the issuance of the insurance policy. The expression “arranging for”, as used in the definition of “financial service”, is not defined in the ETA. It therefore has its ordinary meaning which is essentially bringing together the parties to the transaction, as an intermediary. However this interpretation must also be considered in the context of the particular industry.
There are a number of considerations in determining whether an intermediary is arranging for the issuance of an insurance policy. However, as it pertains to this particular fact situation, it is generally accepted that persons whose principal business is normally carried on outside the insurance industry (for example, a travel agent) may sometimes act as intermediaries in arranging for supplies of financial services, where certain conditions are met.
In this case, the only purpose of Service Provider’s supply to the Agent under the Program Agreement is to act as an intermediary to bring together the Insurer and [customers] to effect the Insurer's supply of insurance policies to the [customers]. Also, the Insurer highly relies on Service Provider to sell its insurance policies. Lastly, Service Provider has sufficient direct involvement in the Insurer's supply of insurance policies that it can be said that Service Provider causes the supply to occur. It is only by selecting the insurance option on Service Provider’s website that the issuance of the insurance is triggered – once the [customer] has made payment, the policy is considered issued and is attached to the [customer’s] booking confirmation.
Accordingly in our view, Service Provider is making an exempt supply to Agent of arranging for the issuance of Policies by the Insurer, and the commissions it earns from Agent are not subject to GST/HST.
ADDITIONAL INFORMATION
Tax collected in error
It is unclear whether Service Provider has been collecting GST/HST on the insurance premiums it has collected. A person who has charged or collected from another person an amount of tax in error, may refund or credit the amount of tax to the other person within two years after the day the amount was collected. Alternatively, a person who has paid an amount of tax in error (for example, the recipient of the supply) may be eligible to apply to the CRA for a rebate under section 261 within two years after the day the amount was paid. Please refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act for further discussion.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 236-330-8100.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Frankie Fenton
Industry Sector Specialist
Financial Services Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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