Province to permanently remove sales tax on personal property insurance

Newfoundland and Labrador’s provincial government has announced it will permanently remove the 15% retail sales tax (RST) on personal property insurance, a move Insurance Bureau of Canada (IBC) says aligns with its “recommended approach after months of advocacy.” 

The issue of RST in Newfoundland and Labrador has been going on for years. In 2016, the provincial government decided to “abruptly” reintroduce RST on auto insurance, only to remove it again a few years later, IBC’s Atlantic region vice president, Amanda Dean, said at the time. IBC also expressed support for permanently removing the tax at that time. 

Last April, the government said it would temporarily remove RST from personal property insurance contracts effective Apr. 7, 2022 until Apr. 6, 2023. “Today, the province confirmed that it is a permanent removal, not another extension,” IBC said in a statement Monday. 

Last year, Dean told Canadian Underwriter IBC was concerned about administrative costs associated with policy changes. Changes to policies require changes to an insurer’s system, Dean explained. For example, renewals can go out months in advance, and if tax changes are made quickly, insurers need to provide customers with rebates.  

In fact, the day the temporary RST removal was introduced in the 2022 budget, brokers and agents in Newfoundland and Labrador started receiving calls from customers “wondering where their rebates were,” Dean told CU last April. 

Since that time, IBC reported it has been in frequent contact with government officials for clarification on its plans to either reinstate the tax on personal property insurance or remove it permanently. “If the tax were to be reinstated, IBC asked that the government provide sufficient notice to insurers to allow for a smooth implementation for customers,” IBC said in the statement. 

“However, IBC persistently emphasized that permanently eliminating the RST from personal property insurance would be the best approach for consumers and the property and casualty insurance industry.” 

When the temporary tax removal announcement was made last April, IBC expressed support for the move that would provide financial relief to consumers. But it asked the Newfoundland and Labrador government to provide insurers with enough time to make necessary adjustments without incurring extra administrative costs that could be passed on to consumers and potentially negate any immediate savings. “IBC ramped up its advocacy to understand the government’s decision in the fall of 2022, knowing the systems challenges that would result in either the removal or reinstatement of the RST on personal property insurance.” 

In a letter to Newfoundland and Labrador’s finance minister, Dean outlined IBC’s preference for permanently eliminating the tax on personal property insurance: 

 Most other types of insurance premiums, including auto, are already permanently RST-exempt, and this would help standardize the treatment of premiums when it comes to RST and provide a consistent consumer experience; 
Reapplying the RST in April 2023 would likely lead to confusion and frustration for consumers who already face significant pressure from inflation and would see the reapplication of the RST as an increase to their home insurance premiums; and 
Frequent changes to how RST is applied to an insurance product, such as its addition to auto insurance premiums in 2016 and removal from those premiums in 2019, creates technology, administrative and communications costs for insurers that consumers ultimately bear.

IBC said it will maintain contact with the provincial government to provide advice and policy options for how to reduce costs in a way that supports consumers. 

Feature image by iStock.com/bin kontan