Canada: Quebec compensation tax on insurers extended until the year 2022

To ensure funding for public services, the Quebec Economic Plan includes an extension of the compensation tax on financial institutions for another five years.

The compensation tax on insurance premiums charged to insurers in Quebec, Canada, will remain at the current rate of 0.48% until 31 March 2022, according to the 2017/2018 Quebec Budget published on 28 March 2017. Prior to the publication of the new budget, the compensation tax rates applicable were to decrease from 0.48% to 0.3% after 31 March 2017, and the tax was to end on 31 March 2019.

The 2017/2018 Quebec Budget overwrites the 2014 Budget. To ensure funding for public services, the Quebec Economic Plan includes an extension of the compensation tax on financial institutions for another five years.

Background

The compensation tax on financial institutions in the province can be attributed to Quebec’s sales tax (QST) system. Under the old QST rules prior to 31 March 2010, financial institutions were zero-rated and application for an input tax refund (ITR) from the financial institutions was made possible. To cover the cost of the governing body which grants ITRs to suppliers of financial services, the compensation tax came into being. Its original rate was 0.3% on insurance premiums for the insurance industry.

On 31 March 2010 the authority raised the tax rate to 0.55% - announced in the 2010-2011 budget - to help maintain the budget balance. This rate ended on 31 December 2012.

It is worth noting that from 1 January 2013 (when Quebec strove to harmonize QST with the federal goods & services tax (GST) system) where financial services are exempt from tax rather than zero-rated, the compensation tax on financial institutions was no longer justified and should have been eliminated. However, the authority decided to keep this revenue for budget purposes, though they lowered the rate to 0.3%.

This tax was set to be abolished as part of the completion of the harmonisation of the QST and GST. The tax rate saw another rise to 0.48% (effective 3 December 2014 to 31 March 2017). And as announced in Quebec’s Economic and Financial Situation in early December 2014, the tax was to decrease to 0.3% on 1 April 2017, and was to be terminated on 1 April 2019, before the recent announcement of the new budget plan.

IPT Quote

Compensation tax is calculated on the insurance premium and it is a tax charged to the insurer. Thus, in IPT Quote (IPTQ), TMF Group’s online tax calculation tool, compensation tax is added to the insurance premium tax (IPT) and shown as one tax. This way, the types of tax shown in the system for Quebec is reduced, and it has proven to be more convenient for IPTQ users.

IPTQ is also helpful in indicating tax treatment in a non-admitted scenario. The compensation tax and IPT is payable by the insurer and administered by the insurer, on the basis of admitted business. However, when non-admitted insurance is taken out, the insured is obliged to bear the tax cost and submit the tax to the authority. Such treatment is well presented in IPTQ and when a non-Canadian insurance company is entered into the system, the non-admitted tax treatment will be driven so that tax outcome is shown payable and handled by the insured.

Need more information? Get in touch with our IPT experts.

Find out about our IPT compliance services supported by IPT Quote.

Speak to our experts today

Get in touch to find out how our experts can help grow your business. If you need any more information, or simply wish to ask a question, feel free to get in touch.

Make an enquiry

Keeping up to date

You can now receive our insights and regulatory updates direct to your inbox by choosing the topics and jurisdictions that most interest you. 

Subscribe to our e-Alerts.