There were many changes outlined in NL's Provincial Budget. Are you wondering what this means for the cost of insurance? We have reviewed the information and summarized what it means for you - we wish the news was better.
1 ) What is the Insurance Premium Tax?
The Insurance Premium Tax is a new tax on all property and casualty insurance products (auto, home, commercial) sold in Newfoundland and Labrador. The rate will be 15%. Some of us longer-in-the-tooth consumers and business owners will remember that this tax existed for years and was eliminated by the previous government several years ago.
As of July 1, 2016, all policies will be subject to this tax.
What does this mean?
Policies effective after June 30, 2016 are taxable at 15% (Certain marine policies for vessels over 20 tons are not taxable. Finance fees charged on policies are also excluded from tax.)
This means that during the next year, there may be a period of time when some of your insurance premiums are not subject to tax, and some are. It's an unavoidable consequence of the way the new tax has been implemented and depends on the dates of your policies.
2 ) I'm a business owner, can I claim an Input Tax Credit similar to HST?
This tax is a retail sales tax. It is not HST. As such, input tax credits are not available to businesses or HST registrants.
3 ) Is there a benefit to changing my policy date to something prior to July 1st, 2016 to avoid paying this tax until a later date?
Government has advised us that there will be a retroactive component to this tax, back to the budget date of April 14, specifically to prevent brokers, agents, individuals, or businesses, from cancelling and re-issuing policies to avoid/delay paying the tax. We are still waiting on details from government on the specific measures they will be implementing to deal with this issue.
As well, the Government said that ..."Premature cancellations will be subject to review for instances of tax avoidance by the Department of Finance. Insurers and insurer's agents may be required to submit to the department data for policies issued to customers. As well as polices cancelled and re-issued to pre-existing customers, for review purposes."
4 ) What other taxes may impact my insurance premium?
Government also charges an "Insurance Companies Tax", which is included in the premium of every policy. This is not visible on your policy or on your invoices. This tax has been increased from 4% to 5% in the budget. This is an addition to the separate 15% Insurance Premium Tax. Insurance Companies will be forced to absorb this cost until their next rate filing with the PUB. It will be included in any future rate filings.
5 ) Are there any other taxes that may impact my insurance premiums?
While there are many tax and fee changes, all of which impact the economy, of direct interest to consumers is the increase of 2% on the HST. Insurance policies are not subject to HST, but the cost of claims paid are subject to HST by suppliers. (ie costs to repair cars, fix damage to homes etc;). This may increase the amount paid to settle claims.
Insurance premiums are a reflection of the cost of claims. The increase on the HST will increase the cost of many insurance claims by 2%. (Businesses registered for HST may be able to claim the HST on claims as an input tax credit.) This may impact insurance premiums down the road since insurance premiums are driven by claims costs. If claims costs go up, premiums may increase to match this cost.
Combined with the increase in the Insurance Companies tax, insurance companies will be determining the impact of these extra costs in future rate filings with the Public Utilities board. Ultimately, the impact of these changes will be determined by the cost impact for each individual insurance company.
6 ) Do I need to do anything now?
Recently, the government released more information on the Retail Sales Tax with their own FAQs. You can download the Government's Questions & Answers here.
Insurance is a significant cost for many people, and it is a requirement by law for automobiles, and by banks, finance companies and other lending institutions. Consumers and businesses need this protection for their financial security. We realize that this represents a significant financial burden for many clients.
There are ways to help keep premiums down by selecting higher deductibles, avoiding making small claims, and bundling policies to get maximum multi-line discounts. Click here to find more details on ways to keep your premiums lower...
Reviewing your coverage options should be a part of your on-going relationship with your Account Manager. If you have questions, about this new tax, reach out to your Account Manager to determine what options are best for you.