NL eliminates insurance premiums tax

May, 2008 – The province of Newfoundland and Labrador has eliminated the 15% retail sales tax on insurance premiums in this year’s budget.

According to Premier Danny Williams, this will put money directly back into the pockets of tax payers in the province. It will cost the government approximately $94 million this year and an estimated $75 million annually thereafter.

The sales tax on insurance premiums was implemented in the 1960s. In April 1997, the government of the day harmonized the provincial retail sales tax with the GST, and adopted the same tax base as the GST. However, the sales tax on insurance is not subject to GST/HST. The previous government retained the retail sales tax on insurance premiums, and increased the rate to 15%, leading many people to believe that HST and the RST on insurance premiums were the same tax.

Only two other provinces had imposed a similar tax, but with a much lower rate and a narrower base, notes Williams. Those provinces do not have a harmonized sales tax.

The elimination of the tax will be retroactive to January 1, 2008. The Government will ask insurers to refund any tax that has been collected from January 1, 2008 until now on new contracts and renewals. While it will place a small compliance burden on insurers, the insurance industry has lobbied long and hard for the elimination of this tax.

Insurance premiums tax

On April 22, 2008, the NL government announced the elimination of the provincial 15% Retail Sales Tax (RST) on insurance premiums, effective January 1, 2008.

RST had been applied to insurance premiums for property and casualty insurance policies (mainly vehicles, homes and business locations). It did not apply to life, sickness, or health insurance premiums. The tax had applied to consumers, businesses, municipalities and the not-for-profit sector.

The tax was payable at the time of purchasing or renewing a contract of insurance. While it has been common practice among insurers, agents or representatives to extend payment terms to customers over a number of months, the insurer was required to levy and remit the tax upon the full premium amount at the time of the purchase or renewal of insurance, regardless of the payment terms.

Effective immediately, insurers are no longer required to collect this tax. If a person purchased or renewed a contract of insurance on or after January 1, 2008, that person will receive a refund of tax paid. No refunds will be available for insurance contracts purchased or renewed prior to the effective date. No refunds of tax will be provided to taxpayers who cancel insurance policies that were acquired before 2008.

Insurers are asked to refund to clients any tax collected from January 1 to the present. Insurers can apply to the Department of Finance to recover the tax refunded to their clients.

The annual cost to the provincial treasury of removing RST on insurance premiums will be about $94 million this fiscal year, and $75 million annually thereafter.