Ontario Superior Court Clarifies Surety Bond Fees Subject To 3% Premium Tax Under The Corporations Tax Act

Aviva Insurance Company of Canada v. Minister of Finance, 2026 ONSC 2374

The Ontario Superior Court confirmed that fees received by insurers for surety products written in Ontario are subject to the 3% premium tax under the Corporations Tax Act (Ontario) (CTA). Insurers licensed in the class of surety that write surety business in Ontario should review their premium-tax reporting for surety products in light of this decision.

Background

Aviva Insurance Company of Canada, licensed in Ontario to write risks in the class of surety among other classes, brought a motion asking the Court to determine whether paragraph 74(1)(b) of the CTA applied to the fees it received for acting as surety. The products at issue were surety bonds securing a principal’s obligations to an obligee, with Aviva, as surety, retaining recourse against the principal in the event of a default.

The Court's interpretive approach

Paragraph 74(1)(b) of the CTA imposes a 3% tax on gross premiums payable "under any other contract of insurance," distinct from the 2% rate for accident, sickness, and life insurance premiums. The Court found this wording to be ambiguous in the surety context, noting that surety bonds differ from ordinary insurance contracts and that suretyship is distinct from insurance at common law. The ambiguity was not resolved by the French text, the wording of section 74 alone, or by simply importing the treatment of surety insurance from the Insurance Act (Ontario) into the CTA.

Interestingly, the insurer was successful on several interpretative points, in particular, including that a product's classification under the Insurance Act (Ontario) does not automatically dictate its tax treatment under the CTA.

The Income Tax Act reference and legislative history resolved the ambiguity

Of importance to the Court was that section 53 (which appears in Division F of Part IIof the CTA) incorporates federal Income Tax Act rules for determining an insurance corporation’s taxable income. Subsection 138(1) of the Income Tax Act (Canada) deems an insurance business to include "insurance contracts or other arrangements" under which a corporation can reasonably be regarded as insuring against loss, damage, or expense of any kind, applying "regardless of the form or legal effect" of the contract.

The Court concluded that the incorporation of the Income Tax Act (Canada) provisions by section 53 of the ITA also extends to paragraph 74(1)(b) (which appears in Part IV of the CTA). The Court considered the CTA’s legislative history, which showed that the original 1914 definition of “insurance company” expressly included guarantee, surety, and casualty companies, and that the 1968 simplification of the definition was intended to adopt only the federal formulation rather than to narrow the tax base.

Conclusion

Des Rosiers J. concluded that paragraph 74(1)(b) of the CTA applies to surety bonds, meaning fees received by an insurer for surety products written in Ontario are subject to the 3% Ontario premium tax as gross premiums under "other contracts of insurance.”

Implications for insurers

The decision is most immediately relevant to insurers writing surety business in Ontario, which should consider how to report surety fee income and whether that income is subject to Ontario premium tax under the CTA.

The reasoning may also prompt review of other insurance-like products, but the treatment of those products will depend on the wording of the relevant tax provisions, the product structure, and any incorporated statutory definitions applicable to the specific product in question.

Read the original article on GowlingWLG.com