The RST elimination will apply to auto insurance including personal vehicles such as cars, motorcycles, ATVs and other recreation vehicles in addition to commercial vehicles, such as taxis, school buses, trucks (fire, police) and tractor trailers. The autos in scope for this elimination are the same as those that were in scope for the previously announced rate reduction to 13% effective January 1, 2019. The elimination of the tax shall also apply to commercial vehicles.
For those who renew their insurance on or after April 15, 2019 to the time when the change becomes law, insurance companies were lawfully required to collect the tax in accordance with the Revenue Administration Act. However, a refund will be provided in respect of RST paid by customers on automobile insurance contracts entered into or renewed during this period. For contracts in force before April 15, 2019, there will be no refund of tax in a pro-rata basis. The tax is imposed on the date when a contract is entered into or renewed.
Amendments have been made to the Revenue Administration Act and Regulations to enact the elimination of the tax on auto insurance and Government anticipates that refunds to clients will be processed by the end of September 2019. Based on consultation with industry it is expected that this would allow sufficient time for industry to deal with all the administrative and information technology issues related to issuing these refunds.
Government will provide refunds to industry where insurance premiums tax had already been remitted to government in respect of auto insurance policies entered into or renewed after April 14, 2019.
An insurance endorsement is an amendment or addition to an existing insurance contract which changes the terms or scope of the original policy. The tax rate charged for any policy changes (endorsements) will be based on the date of the original contract of insurance and not the effective date of the policy change. Whether RST will apply to endorsements will be based on when the original contract was initially entered into or renewed. The effective date of the endorsement itself will not be the relevant factor in terms of the tax status of the policy change.
The tax is charged based on the date when a contract of insurance is entered into or renewed. Regarding annual contracts, for example, the tax is charged under 91.1 of the Revenue Administration Act at the time when a contract is entered into or renewed and based on the tax rate prevailing at that time. Installment payments are a common industry practice that is a financing arrangement between insurance providers and their customers. However, the rate of tax in effect is based on when the annual contract was entered into or renewed. Whether a policy is paid for up front in its entirety or by way of installments is not relevant for RST purposes. If a policy was entered into or renewed before April 15, the whole amount is subject to tax regardless of the payment plan.
The premium has to be broken down between taxable and exempt components and the tax rate is applied to the taxable premium. If the different components are bundled and not broken down, the whole amount is subject to the tax.
Refunds of tax will not be provided to taxpayers who cancel insurance policies that were acquired before April 15, 2019.