Industry to benefit from B.C.’s dismantling of HST, but may pay more tax in Quebec and Manitoba

B.C.’s “de-harmonization” of its Harmonized Sales Tax (HST), effective Apr. 1, 2013, could mean Canada’s property and casualty industry stands to benefit approximately $31 million by the tax’s removal.

But tax policies in Quebec and Manitoba may end up erasing the positive impact of this adjustment, said Deloitte partner Danny Cisterna, who spoke at the Insurance Bureau of Canada (IBC)’s 2012 Financial Affairs Symposium in Toronto on Apr. 18.

The IBC in 2010 projected the cost impact of the HST to be $31 million. “I guess you are going to get all of that back,” Cisterna told industry delegates at the symposium. “But with what’s happening in Quebec, it’s all just going to go towards their costs.”

Cisterna said Quebec’s move towards a harmonized tax as of Jan. 1, 2013 is not strictly speaking a “true” harmonization, since the Quebec Sales Tax (QST) will remain a provincial tax, which doesn’t happen in other Canadian HST arrangements.

In Quebec, financial and other institutions that provide “financial services” will no longer be able to claim QST paid in relation to those services.

Cisterna noted this would increase the cost of business for Quebec operations, since they would no longer be able to claim tax refunds for the QST. In turn, settlement costs for goods and services related to insurance claims would increase, thereby influencing how much money insurers need to reserve to pay the claims.

Cisterna said the cost impact for the property and casualty industry as a result of Quebec’s proposed harmonized tax regime is anticipated to be approximately $27 million.

Also “hot off the press” is big tax news out of Manitoba. “Manitoba has announced that, like in Ontario and Quebec, they are going to tax insurance,” Cisterna said. “Now you have to deal with a Manitoba tax on insurance.”

The 7% tax on insurance products in Manitoba will be effective July 1, 2012, he said. “I do know that IBC will likely make representation on that, because there is some bad tax policy going on there, and cascading tax issues and, possibly, compliance issues.”