Industry still on guard, despite minister’s assurances about no new changes to GST tax policy

Despite assurances from Canada’s finance minister that previously GST-exempt insurance activities will remain so, members of the property and casualty industry say the wording of the government’s proposed new Bill C-9 – in particular, Clause 55 – is so broad that there is still reason to be concerned about how the Canada Revenue Agency (CRA) will interpret the wording.
“I think the minister wasn’t briefed very well when he said there was no change in tax policy,” Mark Novak, chief of tax at Aviva Canada, told a panel discussion at the Canadian Insurance Financial Forum (CIFF) in Toronto on May 19. “I think his briefing note was probably too short, because clearly there is some change….
“There’s a lot being foisted on CRA to try and administer legislation that is very broad. I think the fundamental problem is as much the legislation as it is the interpretation of it.
“I think it’s so broadly worded, inevitably it can be reasonably interpreted broadly enough to catch things that in policy terms should be exempt.”
At issue is whether some of the activities of Canada’s property and casualty insurance industry- including, among other things, broker commissions – would fall under the CRA’s new definition of “preparatory services,” now deemed to be GST-taxable.
In a worst-case scenario, if the CRA deems P&C industry activities to be GST-taxable under the new legislation, the industry’s potential exposure to the broader tax base would be in the neighbourhood of $2 billion, said panel moderator Dean Summerville, a retired partner of PwC.
Panelist Margaret McCreery, insurance industry specialist for the CRA, told seminar participants that the CRA has called for industry input on the proposed new legislation, which is based on its previously released Notice 250.
“The notice is under review,” she said. “[The CRA is] taking a second look at it and they are working with the department of finance.
“They are also asking for industry input, so now is your chance: if you don’t like Notice 250 the way it stands now, now is your chance to speak up as stakeholders.”
Trouble is, however, the CRA is asking for documentation about a broker’s relationship to the public that doesn’t exist.
“[The CRA] would really like to see actual contract, rather than hypothetical situations,” McCreery said. “They’d like to see an actual contract with examples of the types of things that are actually going on out there.”
But this kind of information doesn’t really exist in a contract form, several industry members told McCreery at the panel discussion.
“What [the CRA is] asking for is a [contract outlining the] broker’s work for the customers or the clients,” insurance broker Brenda Rose, an audience member, said in response to McCreery’s presentation. “There aren’t written contracts outlining or describing services brokers are providing in return for their compensation. They [at the CRA] are asking for something that doesn’t exist.
“It has been documented through previous CRA bulletins what is taxable and what is exempt. The contracts existing between brokers and insurers have to do with a binding authority that has nothing to do with the relationship between a broker and a client.”