Federal tax on foreign insurance premiums: what you need to know

In brief 

Anyone who takes out an insurance policy with a foreign insurer or through brokers abroad to cover risks located in Canada may be required to pay a federal tax of 10% on the insurance premiums. 

Similarly, if the parent company of an international group includes its Canadian subsidiary in a global insurance policy, this tax may also apply. 

Application rules 

Under subsection 4(1) of Part I of the Excise Tax Act, a 10% tax applies to certain insurance premiums. This tax is payable by anyone residing in Canada who enters into or renews an insurance contract (excluding reinsurance) covering a risk located in Canada, when the contract is entered into: 

  1. With an insurer not licensed under federal or provincial law, including : 
    • An insurer not incorporated as a legal entity under federal or provincial laws or not established in Canada, 
    • An exchange whose main office or authorized representative is located abroad. 
  2. Through a foreign broker or agent, even if the insurer is licensed in Canada. 

It is important to note that any entity doing business in Canada is considered a Canadian resident for the application of this tax. Thus, a company incorporated abroad but operating in Canada could also be subject to this tax.  

The insurance premium tax generally applies to most types of coverage, with exceptions for certain categories such as marine insurance, life insurance, accident insurance, and health insurance. Furthermore, the federal government may grant exemptions for insurance contracts when the type of insurance purchased is not available in Canada. 

To remember 

  • The applicable tax rate is 10% on net premiums paid or payable for the previous calendar year. 
  • Any person subject to the tax must file a declaration and make payment before April 30 of each year for all insurance contracts entered into or renewed. 
  • In addition to the federal tax, companies may be subject to provincial taxes in Quebec.  
  • Insurance coverages, such as marine, life, personal accident and health, are excluded from this tax. 
  • An exemption may be requested if the insurance purchased abroad is not offered in Canada. 

It's important to carefully review your insurance coverage to ensure compliance with provincial and federal requirements. Our advisors are ready to guide you through this process and help you meet your tax obligations. 

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