Canada’s 2017-2018 budget now includes insurance premiums in the Provincial Sales Tax (PST) regime. The PST tax rate is now 6% but will only be applicable on insurance premiums from 1 August 2017.

Insurance premiums in Saskatchewan now have Provincial Tax applied, as announced in Canada’s government budget of 2017-2018 this March. The budget also introduced an increment of the PST tax rate from 5% to 6%, but it will only be applicable on insurance premiums from 1 August 2017.

This makes Saskatchewan the fifth of 13 Canadian provinces charging sales tax on insurance premiums.

Applicability of PST on insurance premium

The new budget aims at tackling a shortage of revenue income in the province of Saskatchewan, which is one of the reasons why the tax base of PST was expanded. As a type of consumption tax, PST targets the final consumer of a service. For the insurance industry, the insured is liable to assume the tax as a cost.

The Provincial Sales Tax of 6% is applicable to insurance policies (with some exceptions) sold by any company, agency or group, where the insured person or business is a resident of Saskatchewan or the insurance contract is in respect of property located in Saskatchewan.

Life insurance policies and policies covering agricultural risks, which are usually exempt from sales tax in some other provinces, are also subject to PST in the province.

PST will not apply to reinsurance, annuity contracts, contributions or premiums paid under the Canada Pension Plan, Employment Insurance Act (Canada) and The Workers Compensation Act, 2013.

Rules of risk location and implication of taxability

Observing the rules of risk location, where the insured person or business is a resident of Saskatchewan or where the property insured is located in Saskatchewan, the risk location indicates the liability of tax. Insurance contracts that include coverage on risks outside Saskatchewan are taxable only on the portion that relates to Saskatchewan.

In terms of a group insurance policy that covers the participants of a group of employees under a master policy held by the employer, and the individuals covered do not receive separate policies, the employer premiums are taxable depending on the place of employment, not on residency of their employees; while the employee premiums are taxable depending on both the place of employment and residency. An employee must live and work in Saskatchewan for the employee premiums to be taxable.