Government announced on April 22, 2008, that the 15% provincial Retail Sales Tax (RST) on insurance premiums will be eliminated effective January 1, 2008.

RST had been applied to insurance premiums for property and casualty insurance policies (mainly vehicles, homes and businesses). It did not apply to life, accident and sickness, or health insurance premiums. The tax had applied to consumers, businesses, municipalities and the not for profit sector.

The tax was payable at the time of purchasing or renewing a contract of insurance. While it has been common practice among insurance companies, agents and brokers to extend payment terms to customers over a number of months, they were required to collect and remit the tax upon the full premium amount at the time of the purchase or renewal of insurance, regardless of the payment terms.

The following is an overview of the key administrative issues related to the elimination of sales tax on insurance premiums:

• Effective April 22, 2008, insurance companies, agents and brokers must no longer charge RST on insurance purchased or renewed on or after that date.
   
• For contracts of insurance that commenced or were renewed on or after January 1, 2008, a refund of tax will apply. The insurance company or the insurance agent or broker, as the case may be, who collected the tax from the client, is responsible to refund the tax.
   
• For contracts of insurance that were entered into or renewed before January 1, 2008:
  • No refund of tax shall be paid on cancellations, deletions or other reductions in premiums with an effective date of April 22, 2008, or later.
  • Where there was an increase effective January 1, 2008, or later, in the premium payable resulting from additions, endorsements or other changes in the contract of insurance, and tax was payable at that time, the tax may be refunded relative to the amount of the increased premium.
  • If prior to April 22, 2008, an insured person received a refund or credit of premium with respect to a cancellation, deletion or other reduction in premium, a refund of the tax applies. In most cases, the insured person would have already received a credit note/invoice and a refund or adjustment in installment payments.
  • Where the effective date of a transaction giving rise to a reduction in premium is prior to April 22, 2008, and a credit note/invoice is issued subsequently, a refund of tax shall apply.
    
    
• Refund Process
  • The registrant (the insurance company or insurance agent or broker that collected the tax) is responsible to ensure clients receive the appropriate refund.
  • The tax refund may be processed as a direct payment to the client, a reduction in monthly installments, or a credit against an account receivable.
  • A credit note or invoice shall be provided to the client that clearly shows the amount of the tax refund, and the disposition of the amount.
  • It is anticipated that most refunds will be paid within 60 to 90 days.
     
• Recovery of Taxes Refunded by Registrant
  • Registrants must file the April, 2008 tax return without payment.
  • Taxes collected by registrants for the period of January to March, 2008 shall be returned to the registrant, upon application, in 3 equal amounts.
  • The registrant may apply to the Department of Finance, for the first payment when taxes equal to the amount collected in April are credited to clients and refunds are provided or installment accounts are adjusted, as the case may be.
  • The registrant may apply to the Department of Finance, for the second payment once the first payment has been credited to clients and refunds are provided or installment accounts are adjusted, as the case may be.
  • The registrant may apply to the Department of Finance, for the third payment once the second payment has been credited to clients and refunds are provided or installment accounts are adjusted, as the case may be.
     
• The Department of Finance reserves the right to audit a refund claim or otherwise review the records of registrants.