Automobile dealers selling insurance products – indirect sales tax implications

July 07, 2017


During the past several years, both the Canadian Automobile Dealers Association and the Trillium Automobile Dealers Association have led a campaign to have the Canada Revenue Agency (CRA) change their position when auditing automobile dealerships.

In this regard, it has been the practice of CRA auditors to assess these dealerships for not charging GST/HST on commissions that were earned on conditional sales, financing contracts and insurance products when provided by the automobile dealer. In August 2014, there were significant changes, as the CRA issued a Technical Interpretation that backed away from their initial position, but only as it related to conditional sales and finance contracts. This meant that insurance products, such as group insurance, when provided by automotive dealers, were still subject to GST/HST. On March 13, 2017, the CRA released a second Technical Interpretation which outlined their current administrative position on the sale of insurance products provided by an automotive dealer. Take note that the Technical Interpretation may have broader implications and may mean that the sale of insurance products by other dealers, including farm equipment dealers, may be subject to GST/HST.

As a bit of a background, a financial service as defined by the Excise Tax Act (ETA) includes, in part; “the issue, granting, allotment, acceptance and transfer of ownership or repayment of a financial instrument” and is exempt from GST/HST. Keep in mind that when financial agents such as an insurance agent or broker “arrange for” the sale of a financial instrument such as an insurance policy, the financial service is considered to be exempt from GST/HST in accordance with the legislation. On these grounds, the CRA were asked if commissions paid to a dealer by an insurer are exempt from GST/HST on the basis that they are considered a supply of a financial service. As outlined in the Technical Interpretation, the CRA concluded that the activities performed by the automotive dealers in respect of the insurance products were seen as predominately promotional and administrative in nature and did not constitute the “arranging for” a financial service. As a result, the CRA determined that when an automotive dealer provides these services, they are required to charge and collect the GST/HST on the value of the promotional and administrative service at a rate of 5% in non-participating provinces such as British Columbia, Alberta, Saskatchewan and Manitoba, 13% in Ontario and 15% in the Maritime Provinces. Note: it can be expected that the same administrative position will be adopted by Revenue Quebec in regards to the Quebec Sales Tax (QST).

There is no doubt that the CRA’s current administrative position is not good news for automotive dealers that sell insurance products. As such, automotive dealers that have not been charging the GST/HST should change their systems in order to begin collecting the tax on these services. Additionally, automotive dealers that have not been collecting the tax on insurance products sold through the dealership should contact their BDO Indirect Tax professional to help address any potential indirect tax exposure.

Should you have any questions on this matter and how it may impact you, please contact a member of our Indirect Tax Team, or your local BDO advisor.

Mark Bloch
Senior Manager, Indirect Tax

The information in this publication is current as of July 7, 2017.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.