The province of Manitoba recently enacted legislation imposing a 7% retail sales tax ("RST") on premiums payable on taxable insurance contracts, effective as of July 15, 2012 (the "Effective Date"). The new RST is payable by every person who enters into an insurance contract, if the person resides or carries on business in Manitoba, or if the insurance contract covers risks, perils or events in Manitoba. Taxable insurance contracts generally include group insurance contracts, insurance contracts on land, buildings or goods located in Manitoba and liability and credit insurance1. Insurance contracts that relate to risks that may occur both inside and outside Manitoba will be taxable only on the portion that relates to Manitoba. While the Manitoba rules are to a large extent similar to those in Ontario, there are differences.
The RST will generally apply to both new and existing contracts. For non-group contracts with a definite term, RST is payable on premiums on new or renewal contracts that come into effect on or after the Effective Date. For contracts with an indefinite term and group contracts, RST is payable on premiums that are payable, and that relate entirely to a coverage period beginning, on or after the Effective Date.
The RST rules include registration, collection and remittance requirements. Insurance companies that are authorized to sell insurance in Manitoba must register, collect and remit RST on taxable insurance contracts sold directly by them. If an insurance company uses agents or brokers to sell contracts, and invoice and collect premiums on its behalf, the agents and brokers must register to collect and remit RST on those contracts. All other vendors that sell taxable insurance contracts must register to collect and remit RST, unless the insurance companies they deal with have agreed to collect and remit the RST in respect of the contracts they sell.
Administrative penalties of 10% of the non-remitted RST, plus interest at "prime" plus 6% can be assessed for non-compliance. However, it appears that Manitoba may likely permit a grace period for insurers that encounter systems issues that prevent compliance by the Effective Date and use their "best efforts" to comply as soon as practicable.
Insurance companies, brokers and agents dealing with insureds or risks in Manitoba should determine if they are subject to the new RST regime. If they are, they should implement systems to ensure compliance.
Footnotes
1. In June 2012, the Manitoba Department of Finance released "Information Bulletin No. 061 (The Retail Sales Tax Act)" that outlines the types of taxable insurance contracts that are subject to RST and how the RST should apply to new and existing insurance contracts. The RST will not apply to premiums on certain insurance policies including, individual life, disability or critical illness insurance policies.
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