Administrative Services Only with Stop-Loss

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-136R

Date of Issue:

Issued: May 20, 1994
Revised: April 2001

Subject:

ADMINISTRATIVE SERVICES ONLY WITH STOP-LOSS

Legislative Reference(s):

Subsection 123(1) of the Excise Tax Act : definition of "insurance policy"; definition of "financial service". Financial Services (GST/HST) Regulations

National Coding System File Number(s):

11590-6

Effective Date:

January 1, 1991, for GST

April 1, 1997, for HST

This policy statement will discuss the GST/HST status of supplies made by a Life and Health Insurer of third party administrative services under an Administrative Services Only (ASO) contract that applies to an employer's self-insured benefit arrangement (SIBA) which covers employees who are resident in Canada and where the insurance company also provides stop-loss coverage for certain benefits in the SIBA.

Issue and Decision:

An employer may establish a benefit arrangement for its employees to provide medical, dental, vision care etc. coverage for its employees rather than obtaining such coverage by purchasing a group insurance policy. The employer may hire a third party, usually a Life and Health Insurer, to undertake claims processing and administration of its self-insured benefit arrangement (SIBA).

The third party administrator, i.e., the insurance company, will supply such services to the employer's SIBA under an Administrative Services Only (ASO) contract. In addition, the insurance company may issue a stop-loss policy with respect to certain benefits in the SIBA.

The SIBA and the stop-loss policy are separate financial instruments under the Excise Tax Act (the "Act") because they are separate contracts, both independently fall within the definition of "insurance policy" in subsection 123(1) of the Act.

The claims processing and administration of the SIBA provided by the insurance company are services that come within paragraphs(f) and (f.1) of the definition "financial service" in subsection 123(1) of the Act. However, the Financial Services (GST/HST) Regulations (the "Regulations") prescribed under paragraph (t) of the definition of "financial service" exclude specified administrative services supplied by certain third parties in conjunction with financial services from the definition of "financial service".

Subsection 4(1) of the Regulations defines a "person at risk". Under these Regulations, administrative services (as described in subsection 4(2)) that are provided by a "person at risk" would not be considered as a prescribed service (i.e., excluded from the definition of "financial service") for purposes of paragraph (t) of the definition of "financial service".

Accordingly, where an insurance company supplies third party administrative services in respect of a SIBA but is not considered to be "a person at risk" (i.e., the insurance company does not underwrite a group insurance policy or issue a stop-loss policy), the supplies made pursuant to the ASO contract will be taxable. The insurance company will be required to charge and collect GST/HST on the consideration received in respect of the administrative services pursuant to the ASO contract.

However, when an insurance company issues a stop-loss policy that covers one or more benefits contained in an employer's SIBA, the insurance company is considered to be "a person at risk". Consequently, where the insurance company issues a stop-loss policy that covers one or more benefits contained in an employer's SIBA, the supply of all of the administrative services provided by the insurance company with respect to the SIBA are financial services and not excluded from that definition pursuant to paragraph (t).