Insurance industry Key tax rates and updates (2012-2013) Tax changes, rates,

www.pwc.com/ca/insurancekeytaxrates
Insurance
industry
Key tax rates and updates (2012-2013)
Tax changes, rates,
deadlines and other
useful information
for the insurance
industry in Canada.
2012
Insurance industry:
Key tax rates and updates (2012-2013)
This booklet is available at:
www.pwc.com/ca/insurancekeytaxrates.
Insurance help—Who to contact
For more information, please contact any of the following PwC insurance industry advisers:
National Insurance Leader
Taxation
Audit and Assurance Group
Barbara Bryden
Yves Magnan
Jason Swales
1,2
Jillian Welch Jonathan Simmons [email protected]
Greater Toronto Area
Alodie Brew
Leigh Chalmers
Claire Cornwall
Chris Couture
Steven Wilson
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Southwestern Ontario
Glen Dyrda
Calgary
Michael Godwin
[email protected]
[email protected]
Edmonton
Barry James
Gordon Keiller
[email protected]
[email protected]
Montreal
Lyne Dufresne
Alain Dugal
Kenneth Hotton
Philippe Thieren
[email protected]
[email protected]
[email protected]
[email protected]
Quebec City
Raynald Lafrance
[email protected]
[email protected]
Actuarial Services
Dan Doyle
Marco Fillion
Richard Gauthier
1
[email protected]
[email protected]
Mike Firth Mario Seyer
Transfer Pricing
Emma Purdy
[email protected]
Consulting and Deals
Corporate Advisory and Restructuring
David Planques
[email protected]
Corporate Finance
Eric Castonguay
Brooke Valentine
[email protected]
[email protected]
Strategy and Operations
Allan Buitendag
Jennifer Johnson
Arturo Lopez
[email protected]
[email protected]
[email protected]
Risk and Regulatory
[email protected]
Valuations
Helen Mallovy [email protected]
[email protected]
[email protected]
Winnipeg
Tony Catanese
Patrick Green
Commodity Tax
Diana Chant
[email protected]
Vancouver
Paul Challinor
Ronnie De Zen
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Insurance Claims Services
Jim Forbes
Kas Rehman
Bruce Webster
Transaction Services
Carla Eisnor
Philip Heywood
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Office addresses and telephone numbers are
available at: www.pwc.com/ca/offices.
1. Member of PwC’s Canadian National Tax Services (see www.pwc.com/ca/cnts).
2. Member of Wilson & Partners LLP, a law firm affiliated with PwC in Canada (see www.wilsonandpartners.ca).
Contents
Recent tax changes: Selected highlights ............................................................... 1
Recent tax cases ................................................................................................. 10
Key tax dates ..................................................................................................... 12
Canadian premium and fire tax – Rates and deadlines ....................................... 13
Sales tax – Rates and deadlines .......................................................................... 14
Corporate income tax rates for 2012 .................................................................. 15
Capital tax rates for 2012 ................................................................................... 16
Publications ....................................................................................................... 17
Tax News Network
Tax News Network (TNN) provides subscribers with Canadian and international
information, insight and analysis to support well-informed tax and business decisions.
Try it today at www.ca.taxnews.com.
Some cautions
Rates and other information are current to August 27, 2012, but may change as a result of legislation
or regulations issued after that date.
This booklet is published with the understanding that PricewaterhouseCoopers LLP (PwC) is not
thereby engaged in rendering accounting, legal or other professional service or advice. Comments
in this booklet are not intended to constitute professional advice, nor should they be relied upon to
replace professional advice.
No part of this booklet may be reproduced without permission from PwC.
1
Recent tax changes: Selected highlights
Corporate income tax rates for 2012
Combined federal and provincial/territorial corporate income tax rates are listed
on page 15.
Status of changes for accounting purposes
Income tax changes will be recognized for accounting purposes:
• in Canada if they are considered substantively enacted; and
• in the United States if they are enacted.
Tables on pages 1 to 9 show whether corporate tax rate changes effective after
2010 were recognized before Canada’s January 1, 2011 adoption of International
Financial Reporting Standards (IFRS). For those not recognized by then, the
status of the legislation implementing the change is provided. The tables also
indicate if the rates were recognized in the United States. All information is
current to August 27, 2012.
Federal changes
Federal general corporate income tax rate
The federal general corporate income tax rate has decreased:
Rate
Effective
date
Before January 1, 2011 18%
January 1, 2011 16.5%
January 1, 2012 15%1
Recognized for
accounting purposes
in Canada and U.S.?
Yes
1. The federal government’s goal is to achieve combined 25% federal/provincial and federal/territorial rates.
Taxation of corporate groups
The government remains committed to exploring whether new rules for the
taxation of corporate groups could improve the functioning of the corporate tax
system. See our Tax memo “Taxation of Corporate Groups – Consultation Paper
Released” at www.pwc.com/ca/taxmemo.
Eligible dividend designations
For dividends paid after March 28, 2012:
• a corporation can designate, at the time it pays a taxable dividend, any portion
of the dividend to be an eligible dividend; and
• the Minister of National Revenue can accept late designations of eligible
dividends that are made within three years after the day the designation was
first required to be made.
2
Using partnerships to avoid tax
New anti-avoidance rules target the use of partnerships to circumvent the intended
application in the Income Tax Act of:
• section 88, by generally denying the section 88 “bump” in respect of a partnership
interest, to the extent that the accrued gain of that interest is reasonably attributable
to the amount by which the fair market value of “income assets” exceeds their cost
amount, generally for amalgamations that occur and wind-ups that begin, after
March 28, 2012; and
• section 100 by:
– e xtending the application of this section to the sale of a partnership interest to a
non-resident person, unless the partnership uses all of its property in carrying on
business through a permanent establishment in Canada, generally for dispositions
after March 28, 2012; and
– c larifying that this section will apply to dispositions of a partnership interest when,
as part of a series of transactions or events, the interest is acquired by a tax-exempt
or non-resident person.
For more information on the section 88 change, see our Tax memo “August 14, 2012
legislative proposals: Important international tax changes” at www.pwc.com/ca/taxmemo.
Partnership waivers
Starting June 29, 2012, a single designated partner of a partnership can waive, on behalf
of all its partners, the three-year time limit for making a determination by the Canada
Revenue Agency.
Partnership information returns
Information requirements for partnership information returns have been expanded
for fiscal periods ending after 2010 (transitional relief is available for 2011 and 2012 fiscal
periods). See our Tax memo “Changes to partnership returns: What they mean for you” at
www.pwc.com/ca/taxmemo.
Joint venture deferral
Joint venture arrangements can no longer report income using a separate fiscal period.
As a result, corporate participants must report their actual share of joint venture income
or loss up to the end of their own year-end for tax years ending after March 22, 2011,
and in certain cases can claim a transitional reserve for the additional income included
in that year. See our Tax memo “Joint Ventures—CRA ends policy allowing separate fiscal
periods: How will this affect your company? (Updated March 23, 2012)” at
www.pwc.com/ca/taxmemo.
Life insurers Investment Income Tax (IIT)
For life insurance policies issued after 2013, the IIT will be recalibrated when appropriate
to neutralize the effects of proposed technical improvements to the IIT base. See our Tax
memo “2012 Federal budget: What does it mean for insurers?” at
www.pwc.com/ca/taxmemo.
Life insurance policy exemption test
For life insurance policies issued after 2013, the test that determines whether a life
insurance policy is an exempt policy will be updated and simplified. See our Tax memo
“2012 Federal budget: What does it mean for insurers?” at www.pwc.com/ca/taxmemo.
3
Specified investment flow-through (SIFTs) entities, real estate
investment trusts (REITs) and publicly traded corporations
On July 25, 2012, the Department of Finance released draft legislative proposals that
implement measures announced on July 20, 2011, relating to the taxation of SIFTs,
REITs and publicly traded corporations. Comments are due by September 25, 2012.
See our Tax memo “Proposed changes for SIFTs, REITs and publicly traded
corporations: Deductibility of amounts paid in respect of stapled securities” at
www.pwc.com/ca/taxmemo.
October 31, 2011 legislative proposals
On October 31, 2011, the federal Department of Finance released a package of draft
legislative proposals that include changes relating to corporations that carry on an
insurance business.
New Canada Revenue Agency (CRA) audit approach
The CRA has advanced to the next stage of categorizing large corporations in
implenting its new risk assessment approach of selecting files for audit. See our Tax
memo “CRA risk assessment audit approach – What it can mean for your corporation”
at www.pwc.com/ca/taxmemo.
Transfer pricing adjustments
All upward transfer pricing adjustments to a taxpayer’s income will be treated as
deemed dividends subject to withholding tax. The withholding tax can be eliminated,
at the discretion of the Minister of Revenue, if the amount of the primary transfer
pricing adjustment is repatriated to the Canadian corporation.
Shareholder loan rules
Canadian corporations will be permitted, on an elective basis, to make certain loans
to foreign parent companies or related non-resident companies without incurring
the deemed dividend withholding tax. To benefit from this elective relief, the
Canadian corporation must include in income interest at the prescribed rate plus
4% (thus, 5% for the third quarter of 2012). Once the election is made, it will apply
to all loans and indebtedness that become owing after March 28, 2012, from the
foreign parent or related non-resident to the Canadian corporation. See our Tax
memo “August 14, 2012 legislative proposals: Important international tax changes”
at www.pwc.com/ca/taxmemo.
Foreign affiliate dumping
New rules will curtail a variety of transactions, generally occurring after March 28, 2012,
involving an investment in a foreign affiliate by a Canadian subsidiary of a foreign parent
corporation (except certain transactions occurring before 2013 between arm’s length
persons).
See:
• our Tax memos “August 14, 2012 legislative proposals: Important international tax
changes” and “Canadian federal budget targets Canadian subsidiaries of foreign
multinationals” at www.pwc.com/ca/taxmemo; and
• PwC’s submission to the Department of Finance on the federal budget proposals
regarding “foreign affiliate dumping” and “thin capitalization rules” at
www.pwc.com/ca/cnts.
4
Thin capitalization rules
Changes:
• reduce the debt-to-equity ratio from 2-to-1 to 1.5-to-1, for taxation years
beginning after 2012;
• extend the rules to apply to debts of a partnership in which a Canadian-resident
corporation is a member, for taxation years beginning after March 28, 2012;
• treat disallowed interest as dividends for Part XIII withholding tax purposes, for
taxation years ending after March 28, 2012; and
• prevent double taxation when a controlled foreign affiliate of a Canadianresident corporation lends funds to the corporation and the interest is both
disallowed as a deduction in Canada and included in the foreign accrual property
income of the affiliate, for taxation years ending after March 28, 2012.
See:
• our Tax memos “August 14, 2012 legislative proposals: Important international tax
changes” and “Canadian federal budget targets Canadian subsidiaries of foreign
multinationals” at www.pwc.com/ca/taxmemo; and
• PwC’s submission to the Department of Finance on the federal budget proposals
regarding “foreign affiliate dumping” and “thin capitalization rules” at
www.pwc.com/ca/cnts.
Cross-border tax evasion
To facilitate and improve the exchange of tax information and combat cross-border
tax evasion, Canada has signed a Protocol amending the Convention on Mutual
Administrative Assistance in Tax Matters. The member States of the Council of Europe
and the member countries of the Organisation for Economic Co-operation and
Development are signatories.
Tax Information Exchange Agreements (TIEAs)
Canada is negotiating fourteen TIEAs. Sixteen TIEAs have entered into force (one on
behalf of five jurisdictions).
Goods and Services Tax/Harmonized Sales Tax (GST/HST)
Newly enacted rules relating to the GST/HST treatment of imported services for
insurers may result in a seven year GST/HST exposure on non-arm’s length
reinsurance services received from a non-Canadian entity. Basically, under these new
rules, the “loading” component of the reinsurance premiums paid by a Canadian
insurer to a non-arm’s length non-resident is subject to self-assessment, retroactive
to 2005. Early experience has shown that the CRA will identify the loading content
between a third of the premium and its entire value. Given the significant amounts
of tax involved, Canadian insurers are encouraged to perform a serious selfexamination. See our article “A seven-year (retroactive) plague on cross-border
reinsurance,” which has been reproduced in Insurance Review: A Canadian Perspective,
Spring 2012 edition at www.pwc.com/ca/insurance.
5
For insurers, the implications of draft regulations affecting Selected Listed Financial
Institutions (SLFIs), which are effective July 1, 2010, include:
• The definition of an SLFI is amended to deem an insurer to be an SLFI if it insures
risk in respect of:
–property ordinarily situated in a participating province and property ordinarily
situated in any other province; or
–a resident of a participating province and a resident of any other province.
•Financial institutions, including insurers, that are SLFIs are subject to specific
rules regarding the calculation and reporting of net tax on their GST/HST returns.
An SLFI cannot claim input tax credits for the provincial portion of HST paid on
purchases of property or services and must adjust its net tax calculation on its final
GST/HST return using the Special Attribution Method (SAM).
The following enacted GST/HST rules affect the financial services sector, including
insurers:
• “Arranging for” – Generally for supplies made after December 14, 2009, the
definition of “financial service” excludes the following activities, because they do
not constitute “the agreeing to provide, or the arranging for” a financial service:
–facilitator services comprising market research, product design, promotional services, advertising or the collection of information; and
–credit management services in respect of a:
or charge card or similar payment card; or
° credit
credit, charge or loan account, such as credit checking, authorization,
°
valuation, record-keeping, monitoring or dealing with payments.
• Pension rules – For fiscal years commencing after September 22, 2009, all employers, including insurers, that participate in a registered pension plan must account for GST/HST on certain supplies of property or services that the employer is deemed to make to the plan. The registered pension plan can then claim a rebate equal to 33% of the tax actually paid or deemed to have been paid.
Caseload management of the Tax Court of Canada (TCC)
To improve the caseload management of the TCC, draft legislative proposals:
•update the monetary limits for access to the informal appeal procedure;
•remove the requirement for the TCC to deal with all issues raised in an appeal of an
assessment together, enabling some issues to be disposed of independently; and
•permit the TCC to hear a question affecting a group of taxpayers that arises out
of substantially similar transactions, and provide that the resulting judicial
determination is binding on each taxpayer in the group.
Automobile deductions and benefits
The 2012 prescribed rates:
• will remain at their 2011 levels for purposes of determining capital cost allowance,
interest and leasing deductions; and
• for purposes of determining:
– automobile allowance deductions and tax-exempt allowances are 1¢ per
kilometre higher; and
– taxable benefits are 2¢ per kilometre higher, than for 2011.
For more information, see Car expenses and benefits—A tax guide (2012) at
www.pwc.com/ca/carexpenses.
6
Retirement savings plans and deferred profit sharing plans
Contribution limits for retirement savings plans and profit sharing plans are
increasing:
2011
2012
2013
2014
Registered retirement
savings plans
(RRSPs)
Defined contribution
registered pension plans
(RPPs)
Deferred profit
sharing plans
(DPSPs)
$22,450
$22,970
$23,820
$22,970
$23,820
$11,485
$11,910
Indexed
Defined benefit registered pension plans (RPPs)
The maximum pension benefit that can be
paid from defined benefit RPPs is increasing:
Pension benefit
(per year of service)
2011
2012
2013
$2,552
$2,647
Indexed
Employee profit sharing plans (EPSPs)
For EPSP contributions generally made after March 28, 2012, a new tax will be
imposed on the portion of an employer’s EPSP contribution, allocated by the trustee to
a “specified employee,” that exceeds 20% of the employee’s salary received in the year
from the employer. A specified employee generally includes an employee who has a
significant equity interest in his or her employer or does not deal at arm’s length with
the employer.
Retirement Compensation Arrangements (RCAs)
Anti-avoidance rules for RCAs engaged in non-arm’s length transactions will parallel
the “prohibited investment” and “advantage” rules applicable to Tax-Free Savings
Accounts, Registered Retirement Savings Plans and Registered Retirement Income
Funds. They will apply to:
• investments acquired, or that become prohibited after March 28, 2012; and
• advantages extended, received or receivable after March 28, 2012.
For RCA contributions made after March 28, 2012, RCA tax refunds are restricted
in certain cases when the RCA property, reasonably attributable to a prohibited
investment or advantage, has declined in value.
Group sickness or accident insurance plans
Employer contributions to a group sickness or accident insurance plan generally
made after March 28, 2012, relating to coverage after 2012, will be included in an
employee’s income for the year in which the contributions are made. An exception
applies for contributions in respect of wage-loss replacement benefits payable on a
periodic basis. This measure will not affect the tax treatment of private health service
plans or certain other plans. See our Tax memo “2012 Federal budget: What does it
mean for insurers?” at www.pwc.com/ca/taxmemo.
7
Provincial changes
Alberta
Tax system
Alberta will engage in a discussion about its tax system to build a more predictable,
sustainable revenue base, while retaining its tax advantage.
British Columbia
General corporate income tax rate
British Columbia’s general corporate income tax rate is changing:
Rate
Effective
date
British Columbia
Recognized for
legislative assembly
accounting purposes
in Canada and U.S.? 1st reading 3rd reading Enacted1
Before January 1, 2011 10.5%
January 1, 2011 10%
April 1, 2014 11%2
Yes
n/a
n/a3
Not as of August 27, 2012
1. In the United States, the change is recognized for accounting purposes when it is enacted.
2. The 11% rate will be triggered only if British Columbia’s fiscal situation worsens.
3. The status of legislation implementing the change is shown because the change was not recognized before
Canada’s January 1, 2011, adoption of IFRS.
Harmonized Sales Tax (HST)
On April 1, 2013, the 12% HST will be replaced with a sales tax regime similar to
the one that applied before July 1, 2010 (i.e., 7% provincial sales tax and 5%
federal Goods and Services Tax). See our Tax memos “B.C. votes to extinguish HST”
and “Eliminating the HST in British Columbia: Canada’s Department of Finance
proposes transitional rules” at www.pwc.com/ca/taxmemo.
Manitoba
General corporate income tax rate
Manitoba’s general corporate income tax rate is decreasing:
Rate
Effective
date
Recognized for
accounting purposes
in Canada and U.S.?
July 1, 2009 12%
To be determined 11%2
Yes
n/a3
Manitoba legislative assembly
1st reading 3rd reading Enacted1
n/a
Not as of August 27, 2012
1. In the United States, the change is recognized for accounting purposes when it is enacted.
2. Subject to balanced budget requirements.
3. The status of legislation implementing the change is shown because the change was not recognized before
Canada’s January 1, 2011, adoption of IFRS.
Neighbourhoods Alive! Tax Credit
Retroactive to April 13, 2011, clarifications will allow:
• donations made over multiple tax years to accumulate to the $50,000
minimum threshold;
• large up-front donations of up to $200,000 to be used to earn the $15,000
maximum tax credit in subsequent years if in-kind contributions are made in
each of those years; and
• limiting donations to the first four years of the new social enterprise and
providing in-kind services for years two through five.
Corporate tax underpayment interest rate
Starting July 1, 2012, the interest rate on tax underpayments will increase from
prime plus 4% to prime plus 6%.
8
Retail Sales Tax (RST)
Starting July 15, 2012, a 7% RST will apply on certain insurance contracts that relate
to Manitoba (e.g., property and casualty, group life, trip cancellation, baggage and
land titles). It will apply when the insured person is a resident of Manitoba or on the
premiums paid in respect of property located in Manitoba. Some insurance services are
exempt, such as health insurance, reinsurance, accident or sickness, Autopac vehicle
premiums and individual life insurance.
New Brunswick
General corporate income tax rate
New Brunswick’s general corporate income tax rate has changed:
New Brunswick
Recognized for
legislative assembly
Rate accounting purposes
in Canada and U.S.? 1st reading 3rd reading Enacted1
Effective
date
Before July 1, 2011
July 1, 2011
July 1, 2012
11%
10%
8%
10%
Yes
n/a2
n/a
June 7, 2011
June 10, 2011
1. In the United States, the change was recognized for accounting purposes when it was enacted (i.e., June 10, 2011).
2. The status of legislation implementing the change is shown because the change was not recognized before Canada’s January 1, 2011, adoption of IFRS.
Nova Scotia
Capital tax rate
Nova Scotia’s general capital tax has been phased out:
Taxable capital
Effective
date
< $10 million > $10 million
Before July 1, 2011
0.2%
0.1%
July 1, 2011
0.1%
0.05%
July 1, 2012
Nil
Harmonized Sales Tax (HST)
Nova Scotia will reduce its HST rate from 15% to 14% by July 1, 2014, and to 13% by
July 1, 2015 (i.e., the provincial portion of the HST will decrease from 10% to 9% and to
8%, respectively).
9
Ontario
General corporate income tax rate
Ontario’s general corporate income tax rate is changing:
Rate
Effective
date
Before July 1, 2011 12%
July 1, 2011 11.5%
11%
July 1, 2012
11.5%
10%
July 1, 2013
11.5%
Recognized for
accounting purposes
in Canada and U.S.?
Ontario legislative assembly
1st reading 3rd reading Enacted1
Yes
n/a
n/a2
Yes
n/a2
June 20, 2012
n/a
June 20, 2012
1. In the United States, the change was recognized for accounting purposes when it was enacted (i.e., June 20, 2012).
2. The status of legislation implementing the change is shown because the change was not recognized before Canada’s January 1, 2011, adoption of IFRS.
Corporate tax avoidance
Ontario will consider implementing various measures used by Quebec to fight aggressive
tax planning, and will work with the Canada Revenue Agency to see if the tax collection
agreement can be used to counter inter-provincial income shifting.
Employer Health Tax (EHT)
For EHT assessments issued after March 27, 2012, Ontario will not be bound by federal
rulings that determine the existence of an employer-employee relationship.
Federal/Ontario tax issues
Ontario will explore ways to protect its fiscal interest from unilateral federal changes
to the common tax bases. It will work with the federal government on the allocation of
inter-jurisdictional losses, the efficient and effective federal administration of Ontario
taxes, the integrity and effectiveness of the tax system and ways to combat corporate tax
avoidance and underground economy activities.
Compliance with tax obligations
Taxpayers will be required to be compliant with their tax obligations before:
• receiving government grants and other forms of direct government assistance; and
• bidding on projects and contracts that involve provincial funding.
Prince Edward Island
Harmonized Sales Tax (HST)
On April 1, 2013, a 14% HST (i.e., 9% provincial component plus the 5% federal Goods
and Services Tax (GST)) will replace the combined provincial sales tax (PST)/GST rate of
15.5% (i.e., 10% PST, which applies on the 5% GST). Transitional rules will apply.
Quebec
Compensation tax for insurers
On January 1, 2013, the tax rate will decrease from 0.55% to 0.2%, and will be nil after
March 31, 2014.
10
Health Services Fund
Starting 2013, employers can reduce contributions to this fund for employees who
are 65 or older.
Financial services corporations
New financial services corporations that hire eligible employees or incur eligible
expenditures can claim two new refundable tax credits.
Share issue costs
Cost incurred after March 20, 2012, to issue shares as part of an initial public offering
under the stock savings plan II are eligible for a new 30% refundable tax credit.
Taxation of trusts
The tax rate for inter vivos trusts (including mutual fund and specified investment
flow-through trusts) increased from 20% to 24%, for trust taxation years ending after
March 19, 2012.
Quebec Sales Tax (QST)
The QST rate increased from 8.5% to 9.5% on January 1, 2012. The QST will be further
harmonized with the GST on January 1, 2013, with an effective rate of 14.975%. See our
Tax memo “QST to be harmonized with GST by 2013” at www.pwc.com/ca/taxmemo.
Newfoundland and Labrador, Northwest Territories, Nunavut,
Saskatchewan and Yukon
No significant changes were made to the rules that apply to insurers in Newfoundland
and Labrador, the Northwest Territories, Nunavut, Saskatchewan or the Yukon.
Recent tax cases
For additional recent tax cases, see page 42 of Tax facts and figures: Canada 2012
at www.pwc.com/ca/taxfacts.
General anti-avoidance rule (GAAR)
In Copthorne Holdings Ltd. v. The Queen, the Supreme Court of Canada (SCC)
unanimously held that GAAR applied to planning in which cross-border paid-up capital
was duplicated and used to make a tax-free return of capital through a share redemption.
The SCC also commented on the extended meaning of “series of transactions” in
subsection 248(10). See our Tax memos “Reflections on Supreme Court ruling on
GAAR—Copthorne Holdings Ltd.” and “New Supreme Court of Canada ruling on GAAR—
Copthorne Holdings Ltd.” at www.pwc.com/ca/taxmemo.
Break fees
In Morguard Corporation v. The Queen, the Tax Court of Canada (TCC) found that the
taxpayer had received a break fee as an integral part of, and in the ordinary course of,
its regular business operations, and that the receipt of the break fee had no linkage to a
capital purpose. The break fee was therefore found to have been received by the taxpayer
on account of income. The taxpayer has appealed this decision to the Federal Court of
Appeal (FCA). See our Tax memo “TCC rules against Morguard Corporation: Break fee
was fully taxable as an income receipt” at www.pwc.com/ca/taxmemo.
11
Stock option payments
In Imperial Tobacco Canada Limited v. The Queen, the FCA upheld the TCC’s decision
that payments made by the taxpayer to its employees to eliminate an employee stock
option plan in the context of a going-private transaction were capital in nature and not
deductible. The SCC has dismissed the taxpayer’s application for leave to appeal. See our
Tax memo “Deduction Denied for Amounts Paid to Employees for Stock Options in course
of Going-Private Transaction (Imperial Tobacco case)” at www.pwc.com/ca/taxmemo.
Trust residence
In St. Michael Trust Corp. v. The Queen (sub nom. Garron), the SCC agreed with
the reasoning in the lower courts that central management and control over the
trust property, rather than the residence of the trustees, was the appropriate test for
determining trust residence for purposes of the Income Tax Act. See our Tax memo
“Supreme Court of Canada rules on trust residence – St. Michael Trust Corp. v. The Queen
(Garron Family Trust)” at www.pwc.com/ca/taxmemo.
Amalgamations
In Envision Credit Union v. The Queen, the FCA upheld the TCC’s decision that the
tax attributes of two predecessor corporations flowed through to the amalgamated
corporation under common law principles. The FCA also found that section 87 of the
Income Tax Act applied to the amalgamation, even though property of the predecessor
corporations was transferred to a subsidiary simultaneously with the amalgamation. The
SCC has granted the taxpayer’s application for leave to appeal.
Requirement for information (Life insurance “10-8” plans)
In The Minister of National Revenue v. RBC Life Insurance Company et al, the Federal
Court cancelled orders that required insurance companies to provide information on
the holders of their “10-8” life insurance plans because the Minister failed to disclose all
relevant information. The Minister has appealed this decision to the FCA.
Non-resident and non-capital losses
In Saipem UK Limited v. The Queen, the FCA upheld the TCC decision that the
non-resident taxpayer could not deduct the non-capital losses of its wound-up
non-resident subsidiary. The FCA was not persuaded that the TCC had made any error
that would justify its intervention, finding that the provisions of the Income Tax Act at
issue did not violate the non-discrimination provision of the Canada-United Kingdom:
2003 Protocol [Third] Amending 1978 Tax Convention.
12
Key tax dates
The following Canadian tax dates for insurance companies are based on a
December 31 fiscal year end. Deadlines falling on holidays or weekends may
be extended to the next business day. (Filing dates for miscellaneous matters
affecting insurers in Canada, such as provincial taxes, licences, fees, permits and
municipal taxes, are not covered.)
Payments
Federal tax dates
Instalments
Some Canadian-controlled
private corporations
Corporate income tax;
Financial institutions
capital tax
All other insurers
Balance
Last day
of each month1
Life insurer’s investment income tax
Branch tax
Non-resident tax
T2016
Transactions with
non-residents
NR42
June 30
n/a
15 months
after year end
T1134-A and T1134-B
Financial institution GST/HST
annual information return3
April 30
1 month after month of importation
GST111 Schedule 1
n/a
June 30
Payments
Provincial tax dates
Corporate income tax
(Alberta; Quebec)
June 30
March 31
T1135, T1141 and T1142
Insurers not registered for GST
that import taxable supplies
1.
2.
3.
February 28
June 30
Federal excise tax – unlicensed insurance
Capital tax
March 31
Related-party transactions: T106
Foreign property
reporting
Returns
Some Alberta Canadiancontrolled private corporations
All other insurers
Nova Scotia and life insurers in Ontario
Life insurers in Quebec
Instalments
Balance
Last day
of each month1
March 31
Returns
June 30
February 28
Same as federal corporate income tax
Same as provincial corporate income tax
Canadian-controlled private corporations can pay federal and Quebec instalments quarterly (rather than
monthly) if certain conditions are met.
The payer in a transaction with a non-resident is required to remit withholding tax on or before the 15th
of the month following the month the amount was paid or credited to the non-resident.
GST 111 Schedule 1 must be filed by financial institutions that are GST/HST registrants and have total
annual revenues exceeding $1 million. Penalties may apply to returns that are required to be filed after
June 29, 2010.
13
Canadian premium and fire tax – Rates and deadlines
Rates1
Deadlines
Premium tax
Life,
accident
and
sickness
Instalments
Property and
casualty
Fire tax2
Premium tax
Nil
4.4%
British
Columbia3
2%
4%
5
Manitoba
1%
New
Brunswick
Nil5
Newfoundland
and Labrador
N.W.T. &
Nunavut
Varies4
Nova Scotia
60 days after end of
each quarter
3% or 4%
3%
4%
3% or 3.5%
3.5%
2.55%
3%
2%
1.25%
6
3.55%
4%
2% or 3%9
If prior year’s tax
payable exceeds
$25,000, 15th of June,
September
and December
Last day of April, July,
October and January
Last day of June,
September and
December
1.25%
3%
2%
Not required
Alberta
3%
Nil
1%
Nil
1%
Nil9
Ontario
Prince Edward
Island
Quebec7
8
Saskatchewan
Yukon
Fire tax
Return and
balance due
75 days
after year end
March 31
March 15
March 20
Not required
March 15
Premium:
60 days
after last quarter
Fire: March 31
Return: 6 months
after year end
Balance due:
Varies
Same as federal
income tax (page 12)
3 months
Last day of each quarter
after year end
Same as provincial income tax (page 12)
6
Not required
March 15
1. The rates in the table apply to licensed insurers. Different rates may apply to unlicensed insurers in some jurisdictions.
2. Fire tax rates are levied under Fire Prevention Act or similar legislation of each jurisdiction. For Northwest Territories,
Nunavut and Yukon, footnotes 5 and 9 set out rates levied under other legislation relating to fire insurance premiums.
3. British Columbia’s premium tax rate on property insurance and automobile insurance is 4.4%. A rate of 4% applies
to most other types of insurance not referred to in the table.
4. Newfoundland and Labrador’s instalment
Newfoundland and Labrador
deadlines are shown in the table to the right.
Previous year’s tax
Instalment deadlines
5. Northwest Territories and Nunavut impose
> $1,000,000
20th day of each following month
an additional 1% tax on gross premiums in
> $500,000 but < $1,000,000
20th of April, July, October and January
respect of fire insurance.
> $100,000 but < $500,000
20th of July and January
6. Ontario levies a premium tax rate of 3.5% on
< $100,000
Not required
property insurance. Ontario’s instalment
Ontario
deadlines are shown in the table to the right.
Current or previous year’s tax
Instalment deadlines
7. Quebec rates include 0.55% compensation tax
> $10,000a
on insurance premiums. (On January 1, 2013,
One month after month endb
the compensation tax rate will decrease from
> $2,000 but < $10,000
Three months after quarter endb
0.55% to 0.2%, and will be nil after March 31, 2014.)
< $2,000
Not required
8. Saskatchewan imposes an additional 1% tax
a. This threshold must be met in both the current and previous year.
on gross premiums in respect of motor vehicle
b. For taxation years that do not end on the last day of a month,
insurance. Its premium tax rate on hail
instalments are due by the same day of the following month or quarter.
insurance is 3%.
9. Yukon imposes an additional 1% tax on gross premiums in respect of fire insurance and property damage insurance.
14
Sales tax – Rates and deadlines
Tax
Rate
Federal
GST1
5%
Alberta
British Columbia
HST4
12%4
Manitoba
PST
7%5
HST
13%
Filing conditions
Default
Elected
Monthly
tax5
New Brunswick
Newfoundland and
Labrador
Northwest Territories
Nova Scotia
Nunavut
Ontario
Prince Edward Island
HST
15%6
HST
PST
13%7
10%8
Quebec
QST
9.5%9
Annual
taxable
sales
Saskatchewan
PST
5%
Annual
tax
Yukon
GST = Goods and Services Tax
PST = Provincial Sales Tax
Balance and returns
Reporting period Due after
Fiscal year
6 months2,3
Fiscal quarter
1 month2
Fiscal month
No provincial sales tax
Same as federal GST
< $500
Calendar year
$500 to $4,999
Calendar quarter
> $5,000
Calendar month
20 days
Same as federal GST
No territorial sales tax
Same as federal GST
No territorial sales tax
Same as federal GST
Default
Calendar month
< $1,500,000
Fiscal year
> $1,500,000 to
Fiscal quarter
$6,000,000
> $6,000,000
Fiscal month
< $3,600
Calendar year
$3,600 to $7,200
Calendar quarter
> $7,200
Calendar month
No territorial sales tax
HST = Harmonized Sales Tax
QST = Quebec Sales Tax
20 days
3 months3
1 month
20 days
1. Instead of the GST, a 5% First Nations Goods and Services Tax (FNGST) applies in certain First Nations.
2. Every insurer that is a Selected Listed Financial Institution (SLFI) must file Form GST494 “Goods and Services
Tax/Harmonized Sales Tax Return for Selected Listed Financial Institutions” within six months of its fiscal year.
Every insurer (except a SLFI that has a fiscal-year reporting period) must file Form GST34 “Goods and Services
Tax/Harmonized Sales Tax Return for Registrants” within either six months of its fiscal-year reporting period or
one month of its quarterly or monthly reporting period.
3. Federal and Quebec instalments may be due one month after each quarter.
4. British Columbia will replace its 12% HST with a 7% PST and a 5% GST on April 1, 2013. See page 7 for more
information.
5. For Manitoba, a 7% retail sales tax applies on various insurance services, starting July 15, 2012. See page 8 for
more information. The filing frequency noted in the table applies after June 30, 2012. Before July 1, 2012, the
filing frequency was as follows:
Monthly
tax
Filing conditions
< $200
$200 to $499
$500 to $999
> $1,000
Manitoba
Reporting period
Calendar year
Semi-annual calendar period
Calendar quarter
Calendar month
6. Nova Scotia will reduce its HST rate from 15% to 14% by July 1, 2014, and to 13% by July 1, 2015 (i.e., the
provincial portion of the HST will decrease from 10% to 9% and to 8%, respectively).
7. Ontario imposes a retail sales tax of 8% on other insurance premiums, with certain exceptions, e.g., individual life
and health, and automobile premiums.
8. In Prince Edward Island the 10% PST rate is imposed on GST. On April 1, 2013, a 14% HST (i.e., 9% provincial
component plus the 5% GST) will replace the combined PST/GST rate of 15.5%.
9. The QST rate increased from 8.5% to 9.5% on January 1, 2012. The rate is imposed on the GST-inclusive
consideration. The QST will be further harmonized with the GST on January 1, 2013, with an effective rate
of 14.975%. See page 10 for more information. Quebec also imposes a retail sales tax of 5% on automobile
premiums and 9% on insurance premiums, with certain exceptions, e.g., individual life and health.
15
Corporate income tax rates for 2012
The following rates, which have been pro-rated for a December 31, 2012 year
end, apply to insurance companies. For Canadian-controlled private property
and casualty insurers, lower rates may apply on up to $500,000 of active business
income ($400,000 in Manitoba and Nova Scotia).
Basic federal rate
38%
Provincial abatement
-10%
General rate reduction
-13%
Total federal rate
15%1
Provincial
Provincial
+ 15% federal
10%
25%
British Columbia
1
10%
25%
Manitoba
12%1
27%
1
25%
Alberta
New Brunswick
10%
Newfoundland and Labrador
14% H
29%
Northwest Territories
11.5%
26.5%
Nova Scotia
16%
31%
Nunavut
12%
2
Ontario
Prince Edward Island
Quebec
27%
1
11.5%
26.5%
16%
31%
11.9% H
26.9%
Saskatchewan
12%
27%
Yukon
15%
30%
H
1.
2.
Tax holidays are available to certain corporations.
Recent and future income tax changes are outlined on pages 1 to 9.
Ontario corporations that, on an associated basis, have gross revenues of $100 million or more and
total assets of $50 million or more, may have a corporate minimum tax (CMT) liability based on adjusted
book income. CMT is payable to the extent that it exceeds the regular Ontario income tax liability.
16
Capital tax rates for 20121
Life1
Part VI financial
institutions
2
capital tax
Federal
On first $1 billion taxable capital
On taxable capital > $1 billion
Non-life1
Nil
1.25%
Alberta
British Columbia
Manitoba
No capital tax
New Brunswick
Newfoundland and Labrador
Northwest Territories
If taxable capital
Nova Scotia < $10 million
3
On first $5 million taxable capital
Nil
On taxable capital > $5 million
0.05%
If taxable capital > $10 million
0.025%
Nunavut
On taxable capital < $10 million
4
Ontario
and
Quebec5
Nil
On taxable capital > $10 million and < $50 million
0.625%
On taxable capital > $50 million and < $100 million
0.9375%
On taxable capital > $100 million and < $200 million
1.25%
On taxable capital > $200 million and < $300 million
0.625%
On taxable capital > $300 million
0.3125%
No capital tax
Prince Edward Island
Saskatchewan
Yukon
1. All rates in this table are for a December 31, 2012 year end. When applying the thresholds, taxable
capital of all companies in a group is considered.
2. The federal Part VI tax is reduced by the corporation’s federal income tax liability. Any unused
federal income tax liability can be applied to reduce the Part VI tax for the previous three years and
the next seven.
3. Recent and future changes in Nova Scotia are outlined on page 8.
4. Ontario capital tax may be reduced by the Ontario income tax and corporate minimum tax payable for
the year.
5.Quebec capital tax may be reduced by the Quebec income tax payable for the year.
17
Publications
PwC issues numerous thought-leadership publications, including those listed below,
for Canadian and international insurance and financial services industries. Copies can
be obtained from our website at www.pwc.com or by contacting any of our Canadian
insurance industry advisers, listed at the front of this booklet.
Insurance Review:
A Canadian perspective
This periodic publication discusses the challenges and
opportunities facing the insurance industry. It is available at
www.pwc.com/ca/insurance. To subscribe, please email
[email protected].
Insurance Club EyeOpener Webcast
and Breakfast Series
This series discusses the key trends affecting insurers
on a variety of topics. Webcast series are available at
www.pwc.com/ca/insurance. To be part of the
quarterly breakfast seminars in Toronto, please email
[email protected].
The insurance industry in 2012 – top issues:
An annual report
This publication describes in detail the challenges the
insurance industry faces in 2012, and the strategies
insurers can use to address them. Topics include:
the impact of persistently low interest rates, strategic
risk management, global growth, “Big Data” and smart
analytics, and regulatory and tax compliance. To download
it, visit www.pwc.com/us/en/insurance.
Canadian Insurance Taxation (Third Edition)
The third edition helps insurers identify potential tax
problems, make better business decisions and be more
effective when discussing these matters with professional
advisers. This 454-page book reflects the existing and
proposed tax and accounting rules as of November 28, 2008.
It includes over 80 flowcharts and tables. Changes from previous
editions include a new chapter on Canada’s transfer pricing
environment and insights into transfer pricing methodologies
available to insurers. To order this publication, visit
www.pwc.com/ca/canadianinsurancetax.
top issues
An annual report
Volume 4
2012
2
Risk and capital
management
9
Financial
reporting
11
Strategy
and execution
22
Regulatory
compliance
25
Tax
Compliance
The insurance
industry in 2012
FPO
18
fs viewpoint – The enormity of uniformity:
How insurers can incorporate global rules
and trends into local compliance
This publication discusses global rules and
trends and the five areas of focus (enterprise risk
management, accounting and valuation, internal
and external reporting, risk modelling, and data
quality, accessibility and comparability) that senior
management should consider when assessing their
readiness for the new environment. To download a
copy, visit www.pwc.com/us/en/insurance.
fs viewpoint
www.pwc.com/fsi
June 2012
02
11
17
22
36
40
Point of view
A deeper dive
into the five
areas of focus
Competitive
intelligence
A framework
for response
How PwC can help
Appendix
The enormity of uniformity:
How insurers can incorporate
global rules and trends into
local compliance
www.pwc.com/insurance
Insurance 2020: Turning change into
opportunity
This research study explores not only the key drivers of
change for the insurance industry as a whole, but also the
implications for your insurance business. It is available at
www.pwc.com/insurance.
Insurance Solvency Regime Developments:
Striking the Right Balance in Canada
This paper considers the solvency regime reform
proposals with a focus on the potential impact on
Canadian life insurers. For a copy, visit
www.pwc.com/ca/insurance.
The Sprint for the Global Footprint: How
Insurers Can Build a Profitable Growth
Strategy Through International Expansion
This publication provides a detailed and multi-faceted
approach to planning international growth to help
insurers implement a well-planned and executable
strategy. To download it, visit
www.pwc.com/us/en/insurance.
Insurance 2020:
Turning change
into opportunity
Insurers who anticipate and
plan for change can create
their own future
January 2012
19
Insurance Banana Skins 2011: The CSFI survey
of the risks facing insurers
This survey of the leading members of the insurance industry
identifies potential sources of risks to the industry and ranks
them by severity. It provides insights into the multitude of risks
insurers face globally and focuses attention on addressing risk in
an organization. It also questions insurers on current risks, future
trends and their preparedness to respond to the risk environment.
To download a copy, visit www.pwc.com/insurance.
15th Annual Global CEO Survey – Sustaining
competitive relevance: Insurance industry
summary
PwC’s 15th Annual Global CEO Survey reports on how
business leaders from around the world are preparing for
growth in their priority markets. The survey finds that
insurance CEOs are optimistic about their future prospects,
but view economic uncertainty and over-regulation as their
greatest threats to growth. 70% of insurance CEOs plan
to change their strategy over the next year. Most changes
respond to the immediate challenges of regulation, economic
instability and pressure on consumer spending, not on how
to prepare for the medium and longer term developments
ahead. For more findings, download this publication at
www.pwc.com/ceosurvey.
www.pwc.com/ceosurvey
Sustaining
competitive
relevance
Insurance industry
summary
Key industry findings
from the PwC 15th Annual
Global CEO Survey
A quarterly journal
2012
Issue 2
technology forecast: A quarterly journal
This periodic publication delivers insightful briefings
on technology trends. Previous issues include topics such as
new customer analytics, social media intelligence and tools,
sustainability and innovation. The forecast is available at
www.pwc.com/techforecast.
IFRS News
This monthly global publication that provides
Canadian-specific content, IASB technical updates
and PwC insights into the impact of Canada’s adoption
of International Financial Reporting Standards (IFRS)
can be found at www.pwc.com/ca/ifrs/news. For more
publications on IFRS, see www.pwc.com/ca/ifrs.
06
Exploiting the growing
value from information:
Creating an operating
model for permeability
34
Consumerization
of APIs: Scaling
integrations
54
Embracing open IT:
Enabling the permeable
enterprise
The business value of APIs
David Zanca (on right)
Senior Vice President
FedEx Services
Thomas Wicinski (on left)
Vice President
FedEx Services
Value, on your terms
We focus on four areas: assurance, tax, consulting and deals services. But we don’t think off-the-shelf products and services are always
the way to go. How we use our knowledge and experience depends on what you want to achieve.
PwC Canada has more than 5,700 partners and staff in offices across the country. Whether you’re one of our clients or one of our team
members, we’re focused on building deeper relationships and creating value in everything we do.
So we’ll start by getting to know you. You do the talking, we’ll do the listening.What you tell us will shape how we use our network of
169,000 people in 158 countries around the world—and their connections, contacts and expertise—to help you create the value you’re
looking for.
See www.pwc.com/ca for more information.
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Please see www.pwc.com/structure for further details. 2853-01 08.12