On April 14, 2016, the Finance Minister of Newfoundland and Labrador announced the province's 2016 budget, which included an increase to the province's insurance companies tax rate and the reintroduction of a retail sales tax on insurance premiums.
The insurance companies tax is imposed on insurance companies providing insurance through contracts of insurance not otherwise exempted under the Insurance Companies Tax Act. Effective July 1, 2016, the rate for the insurance companies tax will increase to 5% from 4%.
The retail sales tax on insurance premiums is imposed on persons or companies maintaining certain types of insurance policies under a contract of insurance. Prior to being eliminated in 2008, the retail sales tax on insurance premiums imposed a 15% tax on property and casualty insurance contracts, including policies for vehicle, home and business insurance. Effective July 1, 2016, the retail sales tax on insurance premiums will return and again require insured parties to pay a tax equal to 15% of the premium payable on such policies.
To ensure compliance with the province's tax laws, insurance companies, brokers, agents and policyholders should determine whether the above taxes apply to their contracts of insurance in advance of the July 1, 2016 effective date.
Taxpayers in Newfoundland and Labrador should also take appropriate measures to update their accounting systems in advance of the increase to the HST rate to 15% from 13%, also taking effect July 1, 2016.
