Canadian Underwriter

Beware the tax implications of unlicensed insurance

May 3, 2022   by Jason Contant

Driver handing over a license.

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If you’re looking to place a risk through an insurer that’s not licensed to write business in Canada, it’s important to understand the requirements around filing federal and provincial taxes, as well as special broker licenses.

Although direct placement with unlicensed insurers is not prohibited in Canada (except in Nova Scotia), it is virtually impossible to rely on this as a legal option. That’s because the client would be responsible for all statutory reporting and payment of applicable taxes.

“In Canada, for a placement to be licensed, it must be placed by a licensed Canadian insurer and a Canadian broker,” explains Mark Williams, president of Wilson M. Beck Global Risks, a Burlington, Ontario-based, boutique brokerage specializing in multinational insurance solutions, inbound and outbound and corporate risk solutions.

“Unlicensed insurance is not strictly prohibited, but each province has a different rule to follow,” says Williams. “Fundamentally, the main trigger [for someone to buy coverage is that] you cannot purchase insurance in Canada at an economical price. As a broker, you need to go through a process.”

That process typically involves having a client sign off on the fact that they know they’re not protected under the provincial financial services regulator. It also requires an understanding of federal excise tax (which is 10%, and the client is responsible to file through their normal tax process), provincial/territorial taxes and associated penalties, and special broker requirements.

“In some provinces, you need to be a special licensed broker,” Williams says. Alberta and Quebec are among the provinces where you need to be a special licensed broker to file those taxes in the provinces. And the tax rates can be steep.

“In Alberta, if you don’t use a special licensed broker, then the client’s responsibility is 50% of the allocated premium,” he adds. “If they do use a special licensed broker, it’s 4%.” That 50% could become 10% if proposed changes to the Insurance Act and the Captive Insurance Companies Act are realized during the current legislative session.

Other provinces and territories have unlicensed premium taxes between 2% and 10%. Penalties for placing unlicensed insurance can be quite severe. On the lower end of the scale, they’re ‘discretionary’ in the territories. In Manitoba, the penalty is 1% to 3% of the outstanding amount. In Ontario, that ramps up to between 5% and 50%, while in Quebec the premium tax can skyrocket up to 200% of the outstanding amount.

Other provinces require a certain annual interest on any unpaid taxes. In Nova Scotia, “an agent or broker becomes personally liable to the insured on all contracts made by or through a broker with an unlicensed insurer,” Williams says.

He notes unlicensed insurance has been more widely used recently due to hard market conditions.

“There’ll be a lot of companies that need to file their unlicensed taxes,” he says. “Often, there are challenges regarding the taxes because the overseas broker will place it not necessarily in line with Canadian regulation and we have to advise accordingly.”


This article is excerpted from one that appeared in the April issue of Canadian Underwriter.  Feature photo courtesy of