1. Healthcare

Insurers — Quebec Clarifies Tax Increase on Auto
Insurance Premiums
January 28, 2015
No. 2015-05
Many insurers are affected by Quebec’s recent tax increase on automobile insurance
premiums to 9% (from 5%) effective starting in 2015. Insurers that have monthly insurance
premium tax reporting periods have up to June 30, 2015 to collect the amounts attributable to
this 4% tax increase. Revenue Quebec recently clarified that these insurers must remit any
tax increase amounts collected during the six-month transitional period in their monthly
insurance premium tax returns. As a result, insurers with monthly reporting periods that
collect amounts attributable to the 4% tax increase each month cannot hold them for
remittance until the July 31, 2015 deadline, or they could face significant penalties.
Quebec also provided a transitional rule for insurers that have a quarterly insurance premium
tax reporting period ending on January 31, 2015. These insurers effectively have an
additional month to remit tax on automobile insurance premiums paid during that period.
Insurers have only had a short time to make systems changes to address this tax increase.
To help manage related tax risks, affected insurers should review these systems changes as
well as any applicable transitional rules as soon as possible.
Background
Quebec announced in its 2014 Economic Update on December 2, 2014 that it would
increase its tax on automobile insurance premiums to 9% (from 5%). This increase applies
to automobile insurance premiums paid on or after January 1, 2015.
Insurers with monthly reporting periods — Quebec expanded the transitional rules related
to the 4% tax increase for insurers who have monthly insurance premium tax reporting
periods. These new transitional rules, released on December 19, 2014, are significantly
different from the rules originally released on December 2, 2014. According to a recent
Quebec Information Bulletin, for premiums paid as of January 1, 2015, insurers who have
monthly reporting periods can opt to postpone collecting amounts attributable to the 4%
tax increase until June 30, 2015. As such, these insurers will generally have until July 31,
2015 to remit these amounts to Revenue Quebec. (see TaxNewsFlash-Canada 2014-63,
“Insurers — Quebec Expands Transitional Rules for Tax Increase on Auto Insurance
Premiums”).
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TaxNewsFlash – Canada
January 28, 2015
Insurers — Quebec Clarifies Tax Increase on Auto Insurance Premiums No. 2015-05
Insurers with quarterly reporting periods — Generally, insurers that have quarterly
insurance premium tax reporting periods will not benefit from a transitional rule, unless
they have a quarterly reporting period ending on January 31, 2015. In this case, the
original transitional rule released December 2, 2014 continues to apply, and these insurers
have until March 31, 2015 (instead of February 28, 2015) to remit the tax collected on all
automobile insurance premiums paid during the reporting period ending on January 31,
2015 (see TaxNewsFlash-Canada 2014-56, “Insurers and FIs — Quebec Bumps Tax
Costs”).
Insurers with monthly reporting periods — Revenue Quebec Clarifications
Revenue Quebec verbally confirmed some aspects of the new transitional rules to KPMG.
Specifically, Revenue Quebec indicated that insurers with monthly reporting periods that
collect amounts attributable to the 4% tax increase during the six-month transitional period
must include and remit these amounts of tax in their related monthly return, as required by
the general rules. That is, insurers cannot wait until the July 31, 2015 deadline to remit
amounts attributable to the tax increase that they have collected since January 1, 2015. Also,
any amounts attributable to the 4% tax increase not yet collected must be remitted by July
31, 2015
For example, consider an insurer with monthly reporting periods that is only able to update its
systems as of March 1, 2015 to collect the full 9% tax (i.e., the 5% tax and the 4% tax
increase). This insurer will have to include, in its insurance premium tax return for the month
of March, the tax collected, including the 4% tax increase, which is due by the end of April
2015, and so on. However, the insurer will still have to make adjustments to collect the 4%
tax increase for the automobile insurance premiums paid in January and February 2015. If
any tax increase amounts remain uncollected, the insurer will have to include those amounts
not yet collected in its June insurance premium tax return due by July 31, 2015.
Insurers with quarterly reporting periods — Revenue Quebec Clarifications
There is no transitional rule for insurers with quarterly insurance premium tax reporting
periods, unless their quarterly reporting period ends on January 31, 2015. Revenue Quebec
has confirmed that insurers with a quarterly reporting period ending on January 31, 2015
must remit amounts related to tax on automobile insurance premiums for that reporting
period by March 31, 2015, instead of February 28, 2015 (i.e., the 5% tax for November and
December 2014 and the increased 9% tax for January 2015 on automobile insurance
premiums). Revenue Quebec also indicated that any amounts attributable to the tax increase
that insurers were not yet able to collect for premiums paid in January 2015 must also be
remitted by March 31, 2015.
Additionally, some of these insurers that do not file electronically may receive two insurance
premium tax returns for that same quarterly reporting period ending on January 31, 2015, the
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TaxNewsFlash – Canada
January 28, 2015
Insurers — Quebec Clarifies Tax Increase on Auto Insurance Premiums No. 2015-05
regular insurance premium tax return (due by February 28, 2015), and a second return for
the tax on automobile insurance premiums (due by March 31, 2015).
KPMG observations
Many insurers required to collect Quebec tax on automobile insurance premiums only
have a short period left to adjust all their systems to account for the tax increase, if they
have not already done so. Meeting this deadline may prove difficult, as the required
changes could involve systems changes to collect the right amount of tax from clients and
to apply the appropriate transitional rules. Insurers may also have to provide related
information to their employees.
Further, some insurers may have to collect the tax increase retroactively. For example, if
an insurer is only able to start billing the tax increase in February 2015, it will still have to
go back and collect and remit amounts from that tax increase from January 2015. Insurers
that remit insurance tax amounts late face significant penalties and interest. Insurers will
have to ensure their systems can address these types of adjustments.
As a result, insurers should carefully review all the required systems adjustments related
to the tax increase and test these adjustments to help manage tax risks.
We can help
Your KPMG adviser can help you determine the effect of this tax increase on your business
as well as other federal or provincial indirect tax compliance obligations that affect your
business. We can also assist you in meeting your other GST/HST and QST compliance
requirements and reducing related risks and costs.
We can help you manage your indirect tax compliance obligations in all relevant jurisdictions
and help ensure that you are not missing refund opportunities. For details, contact your
KPMG adviser.
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Information is current to January 28, 2015. The information contained in this TaxNewsFlash-Canada is of a general
nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour
to provide accurate and timely information, there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future. No one should act upon such information
without appropriate professional advice after a thorough examination of the particular situation. For more information,
contact KPMG’s National Tax Centre at 416.777.8500.
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TaxNewsFlash – Canada
January 28, 2015
Insurers — Quebec Clarifies Tax Increase on Auto Insurance Premiums No. 2015-05
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