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Alberta clarifies ‘voluntary disclosure’ rules related to paying tax on unlicensed insurance


January 20, 2011   by Canadian Underwriter


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The Insurance Brokers Association of Alberta (IBAA) and the Toronto Insurance Conference (TIC) have received some clarification about Alberta’s ‘voluntary disclosure’ rules, which relate to the payment of taxes on unlicensed insurance.

In Alberta, a client may lawfully arrange unlicensed insurance as long as:

  • the insurer did not solicit the business, and
  • the commercial client pays a tax equal to 50% of the premium it pays for the unlicensed insurance.

Under the province’s ‘voluntary disclosure’ rules, if a client realizes it has placed unlicensed insurance without paying the required tax, it can apply to the Alberta Superintendent of Insurance to have the unlicensed premium tax rate reduced from 50% to an unspecified amount not less than 10%.

In its application, a client must include reason(s) for making the voluntary disclosure and how the error leading to the original non-disclosure occurred, along with any information supporting the lack of availability of licensed insurance at the time of placement.

In a Q&A with Alberta Superintendent of Insurance Arthur Hagan, posted on the TIC’s Web site, the broker associations asked how many times a client may invoke the ‘voluntary disclosure’ application to reduce the 50% tax to 10%.

The brokers understood the application would be a “one-time only” event, but the wording of the legislation does not say this.

“Yes, we [brokers] are correct in that the ‘one time only’ provision is not specified within the legislation,” the TIC paraphrased Hagan as responding. “The final version of the legislation was not what they had originally intended it to be.

“At this point, however, [Alberta legislators] do not intend to change it, so yes, we are also correct in stating that in theory a client could apply more than once under this provision and not be breaking any laws.

“[Hagan] did comment, however, that it was probably less likely for a client submitting repeated requests for the minister’s discretion to obtain a sympathetic hearing.”


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