Canada's 2017-2018 budget now includes insurance premiums in the Provincial Sales Tax. The PST tax rate is now 6 per cent, but will only be applicable on insurance premiums from August 1,2017.
This makes Saskatchewan the fifth of 13 Canadian provinces to charge sales tax on insurance premiums.
The government of Saskatchewan is expanding and raising the provincial sales tax, along with a host of other measures, to bring in $900 million more in tax revenue this year. The new budget aims at tackling a shortage of revenue income in the province, which is one of the reasons why the tax base of PST was expanded. As a type of consumption tax, PST targets the final consumer of a service. For the insurance industry, the insured is liable to assume the tax as a cost.
The Provincial Sales Tax of 6 per cent is applicable to insurance policies (with some exceptions) sold by any company, agency or group, where the insured person or business is a resident of Saskatchewan or the insurance contract is in respect of property located in Saskatchewan.
Life insurance policies and policies covering agricultural risks, which are usually exempt from sales tax in some other provinces, are also subject to PST in the province.
PST will not be applied to reinsurance, annuity contracts, contributions or premiums paid under the Canada Pension Plan, the Employment Insurance Act or The Workers Compensation Act.
"What we're really trying to get across to our Chamber members and local businesses is that it is very important for them to connect with their insurers immediately," said Twila Walkeden, Executive Director for the Weyburn Chamber of Commerce. "It's a good idea to just get the ball rolling to figure out how it's going to impact both themselves and their employees."
Observing the rules of risk location, where the insured person or business is a resident of Saskatchewan or where the property insured is located in Saskatchewan, the risk location indicates the liability of tax. Insurance contracts that include coverage on risks outside Saskatchewan are taxable only on the portion that relates to Saskatchewan.
In terms of a group insurance policy that covers the participants of a group of employees under a master policy held by the employer, and the individuals covered do not receive separate policies, the employer premiums are taxable depending on the place of employment, not on residency of their employees; while the employee premiums are taxable depending on both the place of employment and residency. An employee must live and work in Saskatchewan for the employee premiums to be taxable.
Saskatchewan's PST and GST Taxes now have a combined rate of 11 per cent. This makes Saskatchewan's tax rate the fifth lowest in the country.
This tax will not only affect businesses, it will also affect virtually every person in the province.
"PST of six percent is now going to apply to all insurance as defined in the Saskatchewan Insurance Act. That includes insurance for vehicles registered under the Automobile Insurance Act as well," said Walkeden.
Saskatchewan's current provincial debt is approximately $8,178,151,491.