GST Treatment of Products and Services of Life and Health Insurance Companies

From: Canada Revenue Agency

GST/HST Technical Information Bulletin B-052
April 12, 1991

This publication is not a legal document. It contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. If interpretation problems occur, please refer to the legislation or contact the nearest Revenue Canada Excise office.

INTRODUCTION

This bulletin provides an overview of the GST status of certain products and services supplied by life and health insurance companies. It is divided into five parts.

  • Part 1 - Insurance Products and Services (page 2)
  • Part 2 - Investment Products and Services (page 6)
  • Part 3 - Real Estate (page 9)
  • Part 4 - Administration and Staff Services (page 11)
  • Part 5 - Group Pension Products and Services (page 13).
The products and services in each Part are briefly described and categorized in the following order:

Exempt Products and Services
Taxable Products and Services (at a rate of seven per cent)
Zero-rated Products and Services
GST Not Applicable to Products and Services

Note: A number has been assigned to each product solely for ease of reference. For the purposes of this bulletin, the classification of GST status is based on the description of the products and services, and the assumption that a separate fee is charged for each listed product or service.

The Excise Tax Act contains several definitions that are relevant to the products and services supplied by life and health insurance companies. These definitions are listed here with reference to the section in which they are found.

Financial Service - subsection 123(1) ETA
Financial Instrument - subsection 123(1) ETA
Insurer - subsection 123(1) ETA
Insurance Policy - subsection 123(1) ETA
Segregated Fund of an Insurer - Section 131 ETA

Financial Services Regulations to the Excise Tax Act

Part 1 - INSURANCE PRODUCTS AND SERVICES (GENERAL)

Exempt Products and Services

  • 1-1 Individual Insurance Policy (General) Description: Issues and processes an "insurance policy" to a Canadian resident in consideration for premiums or other fees. Includes underwriting, transfer of ownership, payment of dividends and claims and other policy related transactions.
  • 1-2 Universal Life Policy Description: Issues and processes a policy where the premiums are split into components such as mortality charges and cash values.
  • 1-3 Variable Life Policy Description: Issues and processes a policy where all or part of the premiums are invested in one or more segregated funds. Amounts charged for the management and administration of the segregated fund are taxable.
  • 1-4 Endowment Policy Description: Issues and processes a policy that provides for the payment of the sum insured at the end of a specified period if the life insured is still living. If the life insured dies prior to that specified period, payment is made at the time of death.
  • 1-5 Permanent Life Policy Description: Issues and processes a policy that provides for the payment of the sum insured on the death of the life insured, on the date of death.
  • 1-6 Term Life Policy Description: Issues and processes a policy that provides for the payment of the sum insured on the death of the life insured provided that death occurs within a specified period.
  • 1-7 Re-Insured Domestic Individual Insurance Policy Description: A Canadian or foreign insurance company reinsures an individual insurance policy issued to a Canadian resident. (See also 1-28)
  • 1-8 Individual Annuity Products (General) Description: Issues and processes an annuity contract to a Canadian resident for premiums or other fees. Includes underwriting, transfer of ownership, benefit and dividend payments and other contract transactions.
  • 1-9 Accumulation/ Deferred Annuity Description: Issues and processes an annuity that provides for payments to commence after a specified accumulation period.
  • 1-10 Immediate/Payout Annuity Description: Issues and processes an annuity that provides for payments to commence at the end of the first annuity frequency period following the purchase of the contract for a single premium.
  • 1-11 RRIF/RRSP/LIF/LIRA Description: Issues and processes an insurance or annuity contract registered as a RRIF or RRSP (or LIF or LIRA in Quebec).
  • 1-12 Variable Annuity Description: Issues and processes an annuity where all or part of the premiums are invested in one or more segregated funds. Amounts charged for the management and administration of the segregated fund are taxable.
  • 1-13 Par Annuity Description: Issues and processes an annuity that provides for the payment of dividends in addition to guaranteed benefits.
  • 1-14 Policy Surrender Fee Description: Deducts a fee from cash value when the insurance policy is surrendered.
  • 1-15 Market Value Adjustment Charges Description: Charges for market value adjustment in insurance policy's cash value due to change in interest rates.
  • 1-16 Policy Re-issue/Replacement Fee Description: Charges a fee for the re-issue of a lapsed policy or the issue of a replacement policy.
  • 1-17 Late Delivery, Rescission, Not Taken Fee Description: Charges an agent for not delivering a policy on time or for the refusal by the customer to accept a newly issued policy.
  • 1-18 Fund Commitment Cancellation Charge Description: Charges an agent for the refusal by the customer to accept a newly issued annuity contract.
  • 1-19 Group Life Premiums Description: Charges premiums for Canadian residents insured under a group life insurance policy. (See also 1-26, 1-27)
  • 1-20 Group Health Premiums Description: Charges premiums for Canadian residents insured under a group health insurance policy. (See also 1-26, 1- 27)
  • 1-21 Stop Loss Coverage Fees Description: Charges benefit plan sponsor for insurance of claims in excess of a specified amount. Where a Stop Loss Policy is issued, ASO (administrative services only) services provided for the risks covered under that benefit plan would be exempt.
  • 1-22 ASO (administrative services only) Claims Description: Pays claims and receives reimbursement for these claims from the plan sponsor (group insurance policy holder).
  • 1-23 Reinsured Domestic Group Insurance Policy Description: A Canadian or foreign insurance company reinsures (the portion of) a group insurance policy issued to Canadian residents. (See also 1-7, 1-28)
Taxable Products and Services
  • 1-24 ASO Services and Cost Plus Services Description: Insurer provides employee health benefit administrative and claim settlement services without assuming any insurance risk. The benefit sponsor pays a fee for administrative services only (ASO) or reimburses the insurer or a cost of claims plus fee basis (cost plus). The benefit plan sponsor is invoiced for and directly absorbs all claims costs as well as the administrative fee charged by the insurer.
  • 1-25 Services Provided to Agents for a Fee - Expense Payable to Insurer (Provider) Description: Agent pays a fee for office related services provided (e.g., secretarial services, computer equipment).
Zero-rated Products and Services
  • 1-26 Reinsured Foreign Group Insurance Policy Description: A Canadian or foreign insurance company reinsures (the portion of) a group insurance policy issued to non-residents. (See also 1-19, 1-20)
  • 1-27 Foreign Branch Group Policy Description: Processes in Canada a policy which was sold by a foreign branch of a Canadian or foreign insurer to non- residents. (See also 1-19, 1-20)
  • 1-28 Re-Insured Foreign Individual Policy Description: A Canadian or foreign insurance company reinsures an individual insurance policy issued to a non- resident. (See also 1-7)
  • 1-29 Foreign Branch Individual Policy Description: Processes in Canada a policy which was sold by a foreign branch of a Canadian or foreign insurer to a non- resident.
GST Not Applicable to Products or Services
  • 1-30 Conventions - Foreign Description: Costs incurred by an insurer at a conference outside of Canada for Canadian personnel..Part 2 - INVESTMENT PRODUCTS AND SERVICES

Part 2- INVESTMENT PRODUCTS AND SERVICES

Exempt Products and Services

  • 2-1 Participation Income Description: Receives additional variable interest on a bond or mortgage loan in excess of a specified rate, calculated as a participating percentage of the financial results of the underlying security. Zero-rated if foreign investment.
  • 2-2 Loan commitment, performance, renewal, discharge, extension fees Description: Charges a separate fee to mortgagor for these services.
  • 2-3 Late charges Description: Charges of interest and penalties for late payment of mortgage instalments.
  • 2-4 Prepayment charges Description: Charges for accepting payment of a loan before maturity.
  • 2-5 Sale or transfer fees Description: Charges for transfer of mortgage to another mortgagee.
  • 2-6 Expense reimbursement charges Description: Recovers expenses related to arranging for a mortgage loan provided by the insurer (e.g. title search).
  • 2-7 Assignment renewal fees Description: Charges fee for the transfer of a mortgage ( e.g. change of mortgagor).
  • 2-8 Valuation processing fees Description: Charges relating to the appraisal of property for purposes of a mortgage loan provided by the insurer.
  • 2-9 Security substitution Description: Substitutes property held as mortgage security with another property.
  • 2-10 Contractual Charges Description: Charges for changes and amendments to a mortgage contract.
  • 2-11 Partial pre-payment fees Description: Charges for pre-payment of a mortgage.
  • 2-12 Interest rate buy-downs Description: Charges for arranging interest rate buy-downs.
  • 2-13 NSF cheque handling Description: Charges that relate to the return of a cheque drawn on an account with insufficient funds.
  • 2-14 Mortgage Appraisal Fees Description: Charges for appraisal fees related to mortgage application or monitoring. If not related to mortgage application or monitoring, charge is taxable.
  • 2-15 Mortgage Brokerage Fees Description: Charges for bringing together mortgagor and mortgagee.
  • 2-16 Loan Syndication Fees Description: Pays a fee to the primary lender as reimbursement for processing a loan.
  • 2-17 Commitment Fees Description: Charges a fee for guarantee of providing a borrower a fixed interest rate on a loan.
  • 2-18 Security Lending Fees Description: Charges fees for lending of securities.
Taxable Products and Services
  • 2-19 Leasing Income - Post August 8, 1989 Leases Description: Supplies tangible property that is capital property (e.g. aircraft, computers or other fixed assets) to a person under a written agreement entered into after August 8, 1989.
  • 2-20 Servicing third party mortgages Description: Administers mortgage assets belonging to a third party. Includes charges for expense reimbursements.
Zero-rated Products and Services
  • 2-21 Mortgage Administrative Fees to Foreign Branch Description: Charges and fees, for mortgage administration services, to the foreign branch or subsidiary in support of the foreign mortgage operation (e.g. mortgages on foreign properties).
GST Not Applicable to Products and Services
  • 2-22 Supplies of Leases - Pre August 8, 1989 Leases Description: Receives payment in respect of the supply of tangible property by way of lease from a person under a written agreement entered into before August 8, 1989 (unless lease is altered, varied or renewed after August 8, 1989).
  • 2-23 Supplies of Leases - Pre 1991 Special Leases Description: Receives payment in respect of the leases of automobiles and medical equipment under written contracts entered into before 1991 and paid before 1994 providing possession is transferred to the person before 1991.
Part 3 - REAL ESTATE

Exempt Products and Services

  • 3-1 Ground Rents - Residential Description: Leases or rents real property situated in Canada for a period of one month or longer to the owner or lessee of a mobile home or any other residential unit situated on the land for residential use. If for a period of less than one month, status is taxable at a rate of seven per cent.
  • 3-2 Residential Rents (including incidental charges for storage, parking, etc.) Description: Rents out residential units for a period of one month or longer. If the residential unit is rented for a period of less than one month, status is taxable at a rate of seven per cent.
  • 3-3 Sale of real estate - used residential Description: Sells previously occupied residential real estate.
Taxable Products and Services
  • 3-4 Ground Rents - Commercial Description: Leases or rents land for commercial use.
  • 3-5 Special Rents - Commercial Description: Rents out vending machine space, roof space, parking space, etc, for commercial purposes.
  • 3-6 Property taxes, capital taxes and water charges received as part of commercial rent Description: Rent for provision of commercial space. Fee includes property taxes, capital taxes and water charges.
  • 3-7 Lease cancellation payment - commercial Description: Payment by owner or tenant to cancel a lease.
  • 3-8 Commercial Rent Description: Rents out commercial space.
  • 3-9 Cash inducements to a new tenant Description: Payment by owner to tenant to enter into a lease.
  • 3-10 Sale - Leaseback Payments - Domestic Description: Purchases property and leases back to vendor.
  • 3-11 Purchase and sale of real estate - commercial Description: Purchases and sells commercial real estate.
  • 3-12 Purchase and sale of real estate - new residential Description: Purchases and sells new residential real estate.
Part 4 - ADMINISTRATION AND STAFF PRODUCTS AND SERVICES Exempt Products and Services
  • 4-1 Daycare Fees Description: Charges employees for daycare services.
  • 4-2 Transit Fares Description: Buys municipal transit passes for employees. Provides these to employees at a reduced cost.
Taxable Products and Services
  • 4-3 Cafeteria Services Description: Provides cafeteria services to employees in company's cafeteria. Generally these services are taxable but the GST status of particular items are subject to the relevant provisions of the Excise Tax Act.
  • 4-4 Products sold by tuck shop Description: Sells promotional materials, e.g., logos, T- shirts etc. to employees. Generally these products are taxable but the GST status of particular merchandise is subject to relevant provisions of the Excise Tax Act.
  • 4-5 Taxable Employee Benefit (e.g. leased cars) Description: Provides company cars wholly or partially for personal use of employees.
  • 4-6 Fitness Fees Description: Charges employees for use of fitness and recreational facilities.
  • 4-7 Transportation Pool Fares Description: Charges employees for commuting to work in company's vehicles. Where the company assists employees in commuting because of local emergencies (e.g., transit strikes), and no charge is levied by the company, then GST is not payable.
  • 4-8 Parking Fees Description: Charges employees for parking space.
  • 4-9 Sales to Staff of Used Equipment Description: Sells to employees used furniture, books and office equipment (computers, typewriters, etc.) as part of the commercial activity of the insurer.
Part 5 - GROUP PENSION PRODUCTS AND SERVICES

The next group of products and services relate to contributions to and the administration of a group annuity contract which qualifies as an insurance policy and a financial instrument as defined in the Excise Tax Act. The charges for administration may be grouped into an all-inclusive amount or may be individually calculated and charged to the plan sponsor and/or certificate holders.

Exempt Products and Services

  • 5-1 Group Pension Deposits Description: Deposits made for the annuity contract by the plan sponsor and/or the members.
  • 5-2 Group Discontinuance Service Description: Charges plan sponsor for discontinuing an annuity contract.
  • 5-3 Certificate Holder Withdrawal Service Description: Charges plan sponsor or certificate holders for processing the withdrawal of an individual employee from the group annuity contract.
  • 5-4 Investment Allocation Service Description: Charges plan sponsor or certificate holders for processing the allocation of plan sponsor and member contributions to investment options provided by the annuity contract.
  • 5-5 Benefit Payment Processing Fees Description: Charges plan sponsor or certificate holders for payment services (e.g., EFT) related to the processing of benefits provided under a group annuity contract.
  • 5-6 Miscellaneous Expense Charges Description: Charges plan sponsor or certificate holders for various administration expenses incurred in relation to the group annuity contract.
  • 5-7 Fees for Providing Statements Description: Charges plan sponsor or certificate holders for preparation and issue of statements related to a group annuity contract, such as valuation, certificate holder summaries, etc.
  • 5-8 Record Keeping Fees Description: Charges plan sponsor or certificate holders for record keeping for a group annuity contract.
  • 5-9 Documentation Pension Services Fees Description: Charges plan sponsor or certificate holders to provide to certificate holders a description of the benefits and investment options available under the annuity contract.
  • 5-10 Employee Benefit Statement Description: Charges plan sponsor or certificate holders to provide employees with a periodic statement of individual benefits provided for by the annuity contract.
  • 5-11 Actuarial Services Valuation, Report and Special Study Fees Description: Provides to the plan sponsor an actuarial valuation report or special study of the annuity contract issued by the provider of the service.
  • 5-12 Pension Plan Investment Management and Administration Fees Description: Charges the plan sponsor or certificate holders for investment management and administration of a guaranteed interest accumulation annuity contract issued by the provider of the service.
The next group of products and services pertain to the administration of a group annuity contract where the provider of the service is not a party (at risk) to the group annuity contract.

Taxable Products and Services

  • 5-13 Account holder Withdrawal Charges Description: Charges a service fee for processing the withdrawal of an individual account holder from the group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-14 Investment Allocation Fees Description: Charges a service fee for processing the allocation of account holder contributions to investment options as specified under the group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-15 Benefit Payment Processing Fees Description: Charges a service fee for payment services (e.g., EFT) related to the processing of benefits as specified under the group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-16 Miscellaneous Expense Charges Description: Charges a fee for various administration expenses incurred under a group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-17 Record Keeping Fees Description: Charges a service fee for record keeping for account holders within a group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-18 Fees for Providing Statements Description: Charges a service fee for preparation and issue of statements, such as valuation, account holder summaries, etc., under a group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-19 Account holder Statement Description: Charges a service fee to provide account holders with a periodic statement of individual benefits, as provided for within the group administrative service contract (similar in nature to administrative services contract) which is not an insurance policy.
  • 5-20 Actuarial Services Valuation, Report and Special Study Fees Description: Provides to the plan sponsor an actuarial valuation report or special study of an annuity contract where the provider of the service is not a party to the annuity contract.
  • 5-21 Segregated Funds Management and Investment Administration Fees Description: Amounts charged for the management and administration of the Segregated Fund.
  • 5-22 Custodial Fees Description: Fees for holding and safekeeping of securities related to a Segregated Fund.
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