Insurance Premium Tax Act
Certain Canadian providences, including British Columbia and Nova Scotia, have enacted the Insurance Premium Tax Act. The act allows the government to collect funds for provincial purposes. While licensed insurance companies are responsible for filing and paying the tax to the appropriate providence, the cost is passed on to the insurer. Holders of insurance purchased from unlicensed insurance companies are responsible for reporting and paying the tax related to those premiums.
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Taxable Premiums
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An insurance premium is the fee an insurer pays to obtain insurance. The government charges a tax on the premiums paid by residence of the taxing providence. This means the insurance company must track insurance by providence and report to each providence affected. This is one reason it is important to report a change of address to each insurance company with which you hold a policy; otherwise you will be charged the wrong tax rate. In addition to the premiums insurance companies report, taxes in dividends are paid out or credited to policyholders during the year.
Policies and Tax Rates
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As of June 2010, British Columbia charges 2 percent tax on life, accident and sickness and indemnification or compensation for loss of wages policies purchased from licensed insurers. The tax on property and automobile insurance policies is 4.4 percent and 4 percent on all other insurance policies. Policyholders who hold contracts with unlicensed insurers pay a flat 7 percent tax on the premiums paid.
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Exemptions
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Fraternal benefit societies (mutual corporations that collect all of its premiums from religious, educational and charitable organizations and mutual corporations that collect a minimum of 50 percent of its premiums from farm property policies) are exempt from taxation. Additionally, certain premiums collected by all licensed insurers are exempt. Premiums received in consideration for annuity contracts on marine insurance for a working watercraft and certain health care plans are exempt from taxation.
Dates and Penalties
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The taxation year is January through December. Insurers that owed less than $25,000 in tax in the prior year file once a year. The due date is March 31. Insurers that owed more than $25,000 must file quarterly on day 15 of June, September and December, with the final return due March 31 of the following year. Failure to file on time can lead to interest and penalties assessments. The penalty is 5 percent of the unpaid balance up to $500.
Appeals Process
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Taxpayers have the right to appeal the amount of tax, interest and penalties assessed. The appeal must be made in writing within 90 days of receipt of the assessment. The appeals are made to the Minister of Finance. In the event you disagree with the outcome of this appeal, you have one final appeal available. You have the right to file an appeal under Supreme Court Rule within 90 days of the Minister of Finance's decision.
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References
- Photo Credit tax defined image by Christopher Walker from Fotolia.com
