Services Provided by Certain Insurance Intermediaries

To allow for feedback, this GST/HST Notice had a 3-month comment period. The comment period ended on October 31, 2023, and all comments received are currently being reviewed. Any changes to this GST/HST Notice resulting from this review will be published in an updated publication.

Please note that this GST/HST Notice is not considered to be draft. This GST/HST Notice can be relied upon as an accurate summary of the Canada Revenue Agency’s interpretation of the law on the date of publication.

A Canadian corporation operates as an MGA. The corporation enters into a managing general agent agreement (MGA Agreement) with an insurer that is licensed and resident in Canada. The MGA Agreement provides the following:

• The purpose of the MGA Agreement is for the promotion and sale of the insurer’s life and health insurance policies in Canada.
• The corporation is authorized to promote and sell the insurance policies through its employees or affiliated licensed independent insurance agents (independent agents) who are not employees of the corporation.
• The customers’ applications for insurance are to be submitted by the corporation to the insurer and the insurer approves or denies the applications and, if approved, issues insurance policies.
• The corporation is responsible for recruiting, training and supervising the independent agents according to the insurer’s guidelines.
• The corporation is also responsible for ensuring that the corporation and the independent agents do all the following:
  • maintain appropriate licences to sell the insurer’s insurance policies
  • maintain a reasonable standard of competency related to the insurance policies
  • comply with all relevant laws and with all the insurer’s rules, guidelines and procedures
• The corporation is required to have an agreement (Agreement A) with each of the independent agents to promote and sell the insurer’s policies in accordance with the MGA Agreement.
• The insurer is required to pay commissions to the corporation of a specific percentage of premiums paid for insurance policies issued on the basis of applications or requests for the insurance policies submitted to the insurer by the corporation.
• The insurer is required to pay separate commissions directly to the independent agents for their sales of the policies.

The corporation and each independent agent enter into a separate Agreement A for the independent agent to promote and sell the insurer’s policies. Agreement A provides that when a policy is sold by the independent agent, the parties will share the compensation payable by the insurer to the independent agent based on a specific percentage. It also provides that Agreement A will not continue if the MGA Agreement is terminated.

The insurer and each independent agent also enter into a separate agreement (Agreement B) which states that its purpose is for the independent agent to promote and sell the insurer’s life and health insurance policies in Canada. It indicates that the corporation has the insurer’s authority to ensure that the independent agent maintains a reasonable standard of knowledge and competency related to the sale of the insurer’s policies. It provides that the insurer will directly pay a commission to the independent agent for its sales of the insurer’s policies and that the insurer will also pay a commission to the corporation for the independent agent’s sales of the insurer’s policies. Agreement B provides the insurer with the right to terminate the independent agent’s service of promoting and selling the insurer’s policies. The insurer must advise the corporation if it decides to do so. Agreement B also provides that it will not continue if the MGA Agreement is terminated.

Analysis

Under the MGA Agreement, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under the MGA Agreement form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the MGA Agreement), the predominant element of the supply, for which the consideration is paid, is the corporation’s sale of the insurer’s insurance policies through its employees and through the independent agents. All other services provided by the corporation under the MGA Agreement are ancillary to the corporation’s sale of the insurer’s policies.

The purpose of the corporation’s supply to the insurer under the MGA Agreement is to act as an intermediary to bring together the insurer and customers to effect the insurer’s supply of insurance policies. Also, the insurer highly relies on the corporation to sell its insurance policies through the corporation’s employees and the independent agents. Further, the corporation has sufficient direct involvement in the insurer’s supply of insurance policies that it can be said that the corporation causes the supply to occur. Therefore, the supply made by the corporation under the MGA Agreement is a supply of arranging for the insurer’s supply of a financial service.

The corporation’s supply to the insurer under the MGA Agreement is included in paragraph (l) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). The corporation’s supply of the financial service to the insurer is exempt under section 1 of Part VII of Schedule V. The corporation is not required to charge the GST/HST on the commission paid by the insurer for the supply.

A Canadian corporation, operating as a TPA, develops an employee benefit plan to market to employers. The corporation brands it with its own name and logo. The plan consists of a bundle of insured benefits for employees, including life insurance, extended health insurance, dental care insurance and long-term and short-term disability insurance. As the corporation is not a licensed insurer, the corporation contracts with three insurers that are licensed and resident in Canada to issue group insurance policies to employers, which policies provide the various insured benefits under the plan to the insured employees.

The corporation’s agreement with one of the insurers (insurer) provides the following:

• The purpose of the agreement is to appoint the corporation to sell the insurer’s group insurance policies to employers in Canada, which policies provide extended health and dental insurance coverage to their employees.
• The corporation will design the insured benefits and the related documentation (booklets, forms, standard letters, marketing materials) and set premium rates, subject to the insurer’s approval.
• The corporation will solicit and sell the insurer’s policies to employers, directly or through subcontracted licensed agents and brokers.
• The corporation will recruit, train and monitor the agents and brokers and provide them with advice regarding the terms and conditions of the group policies.
• The corporation will receive and review applications from employers for the policies, determine appropriate rates, issue quotes, enroll employees in the plan and provide confirmation of insurance coverage to the employers.
• The corporation will collect and bill the premiums payable by the employers under the group policies and remit the net amount to the insurer after deducting the corporation’s commission.
• The corporation will receive claims for insured benefits, verify coverage, and pay claims under the group policies on behalf of the insurer.
• For the corporation’s services, the insurer will pay the corporation a commission of a specific percentage of the premiums received for group policies issued by the insurer when sold by or through the corporation and its agents and brokers.
• The corporation is required to pay its agents and brokers for their services.
• The insurer does not have a contract with the agents and brokers.

Analysis

Under the agreement, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under the agreement form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the agreement), the predominant element of the supply, for which the consideration is paid, is the corporation’s sale of the insurer’s insurance policies through its employees, agents and brokers. All other services provided by the corporation under the agreement, including those related to the administration of claims, are ancillary to the corporation’s sale of the insurer’s policies.

The purpose of the corporation’s supply to the insurer under their agreement is to act as an intermediary to bring together the insurer and the employers to effect the insurer’s supply of the insurance policies. Also, the insurer highly relies on the corporation to sell its policies through the corporation’s employees, and network of agents and brokers. The corporation has sufficient direct involvement in the insurer’s supply of insurance policies that it can be said that the corporation causes the supply to occur. Therefore, the corporation’s supply to the insurer is a supply of arranging for the insurer’s supply of a financial service.

The corporation’s supply to the insurer under the agreement is included in paragraph (l) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). The corporation’s supply of the financial service to the insurer is exempt under section 1 of Part VII of Schedule V. The corporation is not required to charge the GST/HST on the commission paid by the insurer for the supply.

A Canadian corporation enters into an agreement with an insurer that is licensed and resident in Canada. The insurer issues travel insurance policies that provide coverage to individual residents of Canada for emergency medical treatment outside Canada, trip cancellation and loss of baggage.

The agreement provides the following:

• The insurer appoints the corporation to act on the insurer’s behalf for the purpose of distributing and managing the policies.
• The corporation will design and draft the policies, insurance certificates, and administrative documents and set premium rates and distributors’ compensation following the insurer’s guidelines.
• The corporation will market and distribute the insurer’s policies through the corporation’s employees or its subcontracted agents.
• The corporation will hire, train and monitor the subcontracted agents that distribute the insurer’s policies and ensure that the subcontracted agents and the corporation’s employees are properly licensed.
• The corporation will collect insurance premiums and remit them to the insurer.
• The corporation will investigate and pay insurance claims following the insurer’s guidelines.
• The corporation will provide monthly reports to the insurer on premiums collected and claims paid.
• For the corporation’s services, the insurer will pay the corporation a commission of a specific percentage of the premiums it receives for the insurer’s policies sold through the corporation’s employees and subcontracted agents.
• The corporation is responsible for paying compensation to its subcontracted agents that sell the insurer’s policies.
• The insurer does not have a contract with the corporation’s subcontracted agents.

Analysis

Under the agreement, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under the agreement form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the agreement), the predominant element of the supply, for which the consideration is paid, is the corporation’s sale of the insurer’s policies through its employees and subcontracted agents. All other services provided by the corporation under the agreement, including those related to the administration of claims, are ancillary to the corporation’s sale of the insurer’s policies.

The purpose of the corporation’s supply to the insurer under their agreement is to act as an intermediary to bring together the insurer and the individuals to effect the insurer’s issuance of a policy. Also, the insurer highly relies on the corporation to sell its policies through the corporation’s employees and subcontracted agents. The corporation has sufficient direct involvement in the insurer’s supply of insurance policies that it can be said that the corporation causes the supply to occur. Therefore, the corporation’s supply to the insurer is a supply of arranging for the insurer’s supply of a financial service.

The corporation’s supply to the insurer under the agreement is included in paragraph (l) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). The corporation’s supply of the financial service to the insurer is exempt under section 1 of Part VII of Schedule V. The corporation is not required to charge the GST/HST on the commission paid by the insurer for the supply.

A Canadian corporation that is a TPA enters into two different agreements with an insurer that is licensed and resident in Canada.

Agreement A provides the following:

• The corporation agrees to solicit customers for, and to distribute, the insurer’s group life and health insurance policies, including renewals of the policies. Specifically, it is required, through its independent insurance agents who are not employees of the corporation, to solicit and receive applications for the policies from customers (for example, employers) and submit them to the Insurer. The insurer will issue the insurance policies to the customers.
• The corporation, and its agents selling the insurer’s policies, must comply with certain directives and standards of the insurer, including holding all required licences.
• The corporation is solely responsible for communication with the insurer. Neither the customer nor the agent communicates directly with the insurer.
• The Insurer is required to pay a commission to the corporation under Agreement A for soliciting and distributing the insurer’s policies. The commission is based on the premiums it collects on behalf of the insurer.
• The insurer does not have a contract with the agents. Rather, the corporation is responsible for paying the agents for their role in soliciting and selling the policies.

Agreement B provides the following:

• The corporation agrees to administer the policies it has distributed for the insurer.
• The corporation agrees to register individuals, such as a customer’s employees, in the policies and ensure they meet the conditions to be eligible to participate in the policies.
• The corporation’s duties include providing insurance certificates and policy information to the participating individuals and answering their questions on the policies.
• The corporation is required to bill the customers and collect the premiums for the policies in force, hold the premiums in a bank account for the insurer and remit them to the insurer.
• The corporation will also provide claims management services to the insurer for the policies it has distributed. This includes ensuring a claimant’s eligibility and entitlement to benefits, forwarding the application for benefits to the insurer and processing and paying the eligible claims. The insurer will advance an amount to the corporation to pay the claims.
• The corporation does not receive separate consideration from the insurer for its services provided under Agreement B.

Analysis

Under Agreement A and Agreement B, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements in the agreements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under both agreements form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the agreements), the predominant element of the supply, for which the consideration is paid, is the corporation’s distribution (sale) of the insurer’s policies through its agents. All other services provided by the corporation under the agreements, including those related to the administration of claims, are ancillary to the corporation’s sale of the insurer’s policies.

The purpose of the corporation’s supply to the insurer under their agreements is to act as an intermediary to bring together the insurer and a customer to effect the insurer’s issuance of a policy. The corporation has sufficient direct involvement in the insurer’s issuance of a policy that it can be said that the corporation causes the financial service to occur. Further, the insurer highly relies on the corporation to sell its insurance policies through the corporation’s agents. Therefore, the corporation’s supply to the insurer is a supply of arranging for the insurer’s supply of a financial service.

The corporation’s supply to the insurer under Agreement A and Agreement B is included in paragraph (l) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). The corporation’s supply of the financial service to the insurer is exempt under section 1 of Part VII of Schedule V. The corporation is not required to charge the GST/HST on the commissions paid by the insurer for the supply.

A Canadian corporation enters into an agreement with an insurer that is licensed and resident in Canada. The insurer issues car replacement insurance policies to customers that purchase new cars from certain Canadian car dealers. The policy provides that, for the payment of a premium, if there is a total loss of the new car through theft or collision and the customer purchases a similar replacement car from the same car dealer, the insurer will pay to the insured customer the difference between the cost of the replacement car and the primary insurer’s settlement amount.

The agreement provides that the corporation will do the following:

• distribute the insurer’s policy through Canadian car dealers

• ensure that each dealer signs a distribution agreement with the insurer in which the dealer agrees to offer and sell the insurer’s policy to its eligible customers by following the procedures in the distribution agreement
• provide training and support to the dealers’ employees regarding the policy
• monitor the dealers to ensure that the policies are distributed in accordance with the distribution agreement and applicable legislation
• collect the premiums and remit them to the insurer after deducting the corporation’s commission
• provide reports to the insurer regarding the policies sold by the dealers, such as the name of the insured, the car make and model, and the price of the car
• send any notices of claims to the insurer

The Agreement also provides that for the corporation’s services, the insurer will pay a commission to the corporation equal to a specific percentage of the premium paid for each policy issued by the insurer through the corporation’s network of dealers.

Analysis

Under the agreement, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under the agreement form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the agreement), the predominant element of the supply, for which the consideration is paid, is the corporation’s distribution of the insurer’s policies through the car dealers. All other services provided by the corporation under the agreement are ancillary and support the corporation’s sale of the insurer’s policies.

The purpose of the corporation’s supply to the insurer under their agreement is to act as an intermediary to bring together the insurer and the insured to effect the insurer’s issuance of a policy. Also, the insurer highly relies on the corporation to sell its policies through the car dealers. The corporation has sufficient direct involvement in the insurer’s supply of the policies that it can be said that the corporation causes the supply to occur. Therefore, the corporation’s supply to the insurer is a supply of arranging for the insurer’s supply of a financial service.

The corporation’s supply to the insurer under the agreement is included in paragraph (l) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). The corporation’s supply of the financial service to the insurer is exempt under section 1 of Part VII of Schedule V. The corporation is not required to charge the GST/HST on the commission paid by the insurer for the supply.

A Canadian corporation is not a licensed insurer or otherwise authorized under the laws of Canada, a province or another jurisdiction to carry on an insurance business. The corporation designs and develops a car replacement contract to be entered into with customers that purchase new cars from certain Canadian car dealers. The contract provides that, for the payment of a fee, if there is a total loss of the new car through theft or collision and the customer purchases a similar replacement car from the same car dealer, the corporation will pay to the customer the difference between the cost of the replacement car and the primary insurer’s settlement amount.

The corporation enters into distribution agreements with the Canadian car dealers, which provide that the car dealers will offer and enter into contracts with eligible customers on behalf of the corporation by following the procedures in the distribution agreement.

An insurer that is licensed and resident in Canada issues a contractual liability insurance policy to the corporation, which provides coverage to the corporation for its obligations under the contracts with the customers. The customers that enter into the contract with the corporation are not insured under the insurer’s policy.

Analysis

When the corporation enters into a car replacement contract with a customer, the corporation’s supply is not included in paragraph (d) of the definition of financial service under subsection 123(1) because the corporation is not issuing an insurance policy. The corporation’s car replacement contract is not an insurance policy as defined in subsection 123(1), in part, because the corporation is not an insurer as defined under that same subsection.

The insurer’s issuance of the contractual liability policy to the corporation is included in paragraph (d) of the definition of financial service and is not excluded from that definition by paragraphs (n) to (t). Therefore, the insurer is making an exempt supply of a financial service to the corporation under section 1 of Part VII of Schedule V. The insurer is not required to charge the GST/HST on the premiums paid by the corporation for the supply.

Although the insurer made a supply under paragraph (d) of the definition of financial service, the corporation is not arranging for the insurer’s supply of the financial service. As the corporation is the only insured person under the policy, the corporation is not acting as an intermediary in arranging for the insurer’s supply to another person.

A Canadian corporation is the owner of an insurance claims adjudication and settlement system. The system enables the corporation to adjudicate drug benefit claims made by insured employees under group health insurance policies issued by insurers and to arrange for the employees to receive the drug benefits from pharmacies at the point of purchase. The corporation has agreements with several pharmacies that agree to use the corporation’s system and to fill the employees’ prescriptions. Once this is done, the corporation pays the pharmacies the amount of the drug benefits provided to the employees at the point of purchase using the insurers’ funds.

The corporation has an agreement with an insurer that is licensed and resident in Canada. The insurer issues group health insurance policies to employers, which provide coverage for their employees. The agreement provides the following:

• The corporation, through its system, will provide the real-time service of receiving electronic records of drug benefit claims submitted by the pharmacies at the point of service, verifying the eligibility of the employees making the claims and adjudicating the claims on behalf of the insurer in accordance with the relevant insurance policies, after which the corporation will pay the pharmacies for the benefits provided to the employees at the point of purchase.
• The insurer will provide the funds needed for the corporation to make payments to the pharmacies for claims made under the insurance policy. The corporation does not take on any financial risk associated with the payment of the claims through its system.
• The corporation is required to use the insurer’s guidelines in adjudicating and paying the claims. It has no discretionary authority in this regard.
• The corporation will maintain the pharmacy network to allow electronic submission of drug transactions and will ensure there is a sufficient number of pharmacies in its network to meet the needs of employees making claims.
• The corporation is required to assist in the development of standards for electronic transaction processing standards.
• The corporation will provide a support desk for the pharmacies.
• The corporation will maintain and update its system for changes in software, products and legislative requirements and will provide real-time monitoring of transactions processing.
• The corporation is required to maintain pertinent drug information (for example, price) for use in the adjudication process.
• The corporation will provide reports to the insurer and will train the insurer’s personnel who are authorized to access the corporation’s system.
• The corporation will conduct routine audit procedures on the pharmacies.
• For the corporation’s services, the insurer will pay a fee to the corporation for each claim adjudicated regardless of whether the claim is approved, rejected or voided by the insurer.

Analysis

Under the agreement, the insurer receives several elements from the corporation for the consideration paid to the corporation. The insurer needs all of the elements and they are inextricably intertwined and integrally connected to one another. Therefore, all of the elements provided by the corporation under the agreement form a single supply.

Taking into account the perspective of the insurer (that is, the recipient of the corporation’s supply under the agreement), the predominant element of the supply, for which the consideration is paid, is an administrative service. For example, the corporation does not make decisions regarding the eligibility and payment of claims independent of the directions provided by the insurer. Further, this administrative service does not consist solely of the payment or receipt of insurance benefits or claims.

Even if the corporation’s supply to the insurer is included in any of paragraphs (a) to (m) of the definition of financial service, it is a prescribed service under paragraph 4(2)(b) of the Regulations and is excluded from the definition of financial service by paragraph (t) of that definition. Subsection 4(3) of the Regulations does not apply to exclude it from being a prescribed service because the corporation is not a person at risk in respect of the insurer’s issuance of the insurance policy and is not otherwise described in that subsection.

The corporation’s supply to the insurer under the agreement is not a supply of a financial service. It is a taxable supply and the corporation is required to charge the GST/HST on the fee paid by the insurer for the supply.