New Guidance for ORST Purchase Exemption Certificates for Insurance
In August 2010, the Ontario Ministry of Revenue issued Tax Tip #19 "Purchase Exemption Certificates" directed at resellers of taxable insurance (insurance premiums). The Ministry wrote:
This information will help purchasers understand when a valid Purchase Exemption Certificate (PEC) may be used.
Claiming RST Exemptions
Retail Sales Tax (RST) will continue to apply to premiums paid under a contract of insurance or benefits plan after June 30, 2010. Some purchasers may be entitled to an exemption from RST. To claim the exemption, the purchaser is required to provide the seller with a valid PEC.
Examples where a PEC may be used by the purchaser to acquire insurance products exempt from RST include:
- Contract of insurance on agricultural products, structures, equipment, livestock and recreational equipment purchased by a person actively engaged in the business of farming
- Cargo insurance for the portion where the risk is not in Ontario
- Contracts of insurance in respect of an aircraft where the purchaser of the aircraft is exempt from RST
- Contracts of Insurance entered into by Indian Bands or Band Councils.
Information Required on a PEC
A valid PEC must show:
- Name of person or name of business•
- Address•
- Name of authorized person•
- Vendor permit number, if it applies•
- Reason exemption is being claimed•
- Date the PEC is issued•
This information is useful to the small handful of persons still caught in the Ontario retail sales tax regime (where a life of input tax credits and a single sales tax did not start on July 1, 2010). what is missing is the useful guidance on who need to know this information --- this Ministry should of started with "For Whom it May Concerns - you know who you are - don't ask us to send you this Tip, we hope you find it on your own".
Please let me help by identifying the class of persons who might benefit from this notice - it is buyers of taxable insurance (under the Retail Sales Tax Act (Ontario) who are not the final user or consumer. It is relevant for those persons who resell the insurance such that another purchaser is downstream. The purchase exemption certificate allows the middleman to not have to pay ORST and apply for a refund to get it back.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
