Your Farming Insurance May Be Subject to Tax
It has come to our attention that the Canada Revenue Agency (CRA) is sending out correspondence to taxpayers regarding their insurance premiums. There are provisions included in the Excise Tax Act (ETA) that could expose your business insurance premiums to tax at a rate of 10% of the premiums paid. These provisions could apply if your business insurance is placed with authorized insurers through brokers or agents outside of Canada or with unauthorized insurers.
This situation may be applicable to your farming business if there are no insurance providers available within Canada to provide insurance coverage on a large greenhouse facility, as an example. A non-Canadian insurance option may need to be considered.
In scenarios where non-Canadian insurance policies are provided to a Canadian farming businesses, CRA considers it to be a taxable insurance policy and it is therefore subject to the provisions and applicable tax rate under the ETA. A taxable insurance policy also comes with a compliance requirement. Form B243E – Excise Tax Return – Insured is required to be completed and submitted to CRA annually. The form requires taxpayers to identify their insurance policy number, the name and address of agent/broker/insurer, net premiums paid, and tax due. The tax due is 10% of the net premiums paid and is required to be reported in Canadian dollars.
Although there is no specific exemption available for farmers, there may be a general exemption available. It is, however, at CRA’s discretion.
Taxpayers with taxable insurance policies should complete Form E638 – Application for Exemption From Insurance Premium Taxes Imposed Under The Excise Tax Act – Part 1 and submit it to CRA. There is various information to be disclosed on this form, along with reasons why the exemption is being requested, and why the business owns a taxable insurance policy. We would suggest completing the exemption form only if there are specific reasons for having a taxable insurance policy. The inability to find a Canadian insurance provider may be sufficient for CRA to provide an exemption from this tax.
If you need assistance with your reporting, please contact one of our Agribusiness professionals.
About the Author
Cory Prince
Cory is involved in corporate, personal, estate and trust tax compliance, and tax planning, including corporate reorganizations, estate and intergenerational planning, business acquisitions, mergers and sales, and taxation upon death.
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