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Ottawa, March 16, 1999
1999-028

Sales Tax Rules Relating to Insurers and Segregated Funds

Related document:

• Notice of Ways and Means Motion to Amend the Excise Tax Act. (Adobe Acrobat version - 5,842 bytes).

Secretary of State (Latin America and Africa) David Kilgour, on behalf of Finance Minister Paul Martin, today tabled in the House of Commons a Notice of Ways and Means Motion that proposes amendments to the Excise Tax Act. The proposed amendments are aimed at clarifying the application of the Goods and Services Tax and the Harmonized Sales Tax (GST/HST) to insurers and their segregated funds.

Under the existing sales tax rules, insurance companies and their segregated funds are deemed to be separate persons. The segregated fund is deemed to be a trust and the insurer is deemed to be the trustee. Further, the activities of the segregated fund are considered to be activities of the trust and not of the insurer. As a result, the segregated fund is treated as having the capacity, in its own right, to make supplies and acquire property and services, such as management and administrative services in relation to the fund.

The intention is to treat the relationship between the insurer and the segregated fund in a manner similar to the relationship between a trustee and a trust. The GST/HST rules governing trust relationships were clarified in recent amendments to the Excise Tax Act. The purpose of the proposed amendments tabled today is to similarly clarify the existing provisions pertaining to insurers and their segregated funds.

For greater certainty, the proposed amendments make it explicit that the insurer makes a supply to the segregated fund when charging the fund for services. This is consistent with the policy intent and industry practice. Appropriate provision is made to ensure that deductions from the fund for payments to policyholders will continue not to attract GST/HST. A regulation-making authority is provided in order to enable the exclusion of additional amounts from the ambit of these rules, if necessary.

The amendments are proposed to apply to all current and future deductions made from segregated funds as well as to deductions made before today where the insurer has treated the amount as taxable (i.e., charged the tax in respect of those deductions and did not claim a refund or a deduction in respect of that tax).

The proposed amendments are set out in the attached document. References therein to "Announcement Date" should be read as references to today's date.

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