Ontario businesses purchased insurance.
I have noticed on two invoices 8% is being charged in taxes.
I am looking at the taxes on two insurance invoices.
- First one says: Provincial Tax Property
- Second one says: Retail Sales Tax - 8%
(Both are 8% of the fees)
I did some research and came across:
In Ontario, property insurance policies are charged only the provincial portion of HST (8%).
Can this be claimed as an ITC on the GST/HST return for these Ontario businesses?
Short answer is NO.
Only HST-paid can be claimed as an Input Tax Credit.
RST, or Retail Sales Tax charged on insurance is not HST, even though it is equivalent to the 8% provincial portion of the HST.
The same goes for RST paid on a vehicle purchase at the MTO. It is 13%, but you can’t claim it as HST.
Wow! That seems odd, because insurance is exempt from GST, but not provincial sales tax (part of the HST). Is there a ruling you know of? Thanks!
Not all provinces tax insurance. Nova Scotia doesn’t.
I now recall a conversation from years ago with someone at CRA regarding PST paid on insurance by an Ontario business.
They said that the PST on insurance cannot be claimed as an ITC but did not provide a specific reference or ruling.
That’s because it is not GST/HST. It’s a provincial tax. The invoice would disclose it as a provincial tax, entirely distinct from GST/HST. Pre-harmonization, an item could be exempt for GST but taxable for PST. It’s just the way it was. The definition of “harmonization” means that some supplies that were previously treated differently for GST and PST must now have the same treatment - either taxable or not. So, a province who previously taxed insurance will have a loss of revenue. They’ll find another way to make it up.
As a comparison, here in NS, if I buy a vehicle from a private individual (i.e., an HST non-registrant), I will be charged 15% NS tax on its fair market value when I register it here. It’s very clear on the receipt from the Registry of Motor Vehicles. Yet I still have clients who pay it and assume it’s an ITC. I warn them to reduce their ITC’s on a following HST report and apply for a refund from the province. A registrant can avoid paying it in the first place by providing their HST number and indicating the vehicle is to be a business asset.
In Ontario the following RST [Retail Sales Tax a.k.a. PST - Provincial Sales Tax] is charged:
- 13% on specified vehicles purchased privately from a person within Canada who is not a GST/HST registrant.
- 8% on insurance and benefits plans.
I had an senior HST auditor confirm that this is RST, not HST. Therefore, even if the payor is a registrant, they can’t claim the RST as an ITC.
If the seller is a registrant they have to charge HST and RST is not applicable.
This was instituted because the dealers were complaining that their cars were 13% more expensive due to the HST being charged.
If you buy a vehicle from a HST registrant you take the invoice with you to the ServiceOntario Centre and because the seller has a HST number, they won’t charge you RST.
Same as in NS. For vehicles, it was necessary to level the playing field. But then you had people falsifying the certificate of registration by writing a ridiculously low selling price on it so the buyer would pay less tax on transfer of registration. So, the Registry of Motor Vehicles went to basing the tax on market value. If you thought it was too high, you needed a written appraisal to back up your position.
During the years prior to harmonization, I worked in construction and we operated in 5 provinces. So, when GST came out, you’d have both a federal and provincial tax audit. PST was a nightmare. Materials would be bought in province A but used in province B, resulting in a remittance to province B and a refund application from province A. It wasn’t fun. I remember the PEI sales tax audit department consisted of one man. He had a list of out-of-province contractors, he scheduled the audits, travelled to the contractor’s head office, conducted the audit, reviewed it with the accountant, went back to PEI, wrote up the results of his audit ,and sent you a copy. In many ways, it was a better system. You were on a first name basis with the auditor, and he generally kept the same position forever. Much like CRA back in the 70’s. You had a list of names & phone numbers taped to your desk under your phone. Depending on youy problem, you knew who to call. If that person couldn’t solve your problem, they gave you another name & phone number. Times have changed.