Insurer loses battle against Quebec tax authorities

Insurers are required to collect tax on insurance premiums, and remit it to the provincial government, within a certain allotted time.

When clients sent a cheque or made an electronic payment to pay their premiums before it was due on the effective date of the policy,  one insurer accepted the sums as soon they were received but did not yet remit to the tax authorities because the policy was not yet in force.

The Quebec Court of Appeal nixed that practice.

The insurer, as per s. 527 of the Act respecting the Québec sales tax (Act), must in its capacity as agent account for the tax collected in the preceding calendar month at the end of the month, held the Appeal Court in Agence du revenu du Québec c. Assurances générales Desjardins inc., 2022 QCCA 57. Whether or not the premium is due does not change the fact that the insurer has collected the amount of tax on insurance premium paid by the insured and must therefore remit it to the Minister, added the Appeal Court.

“There is no doubt that, where the premium is paid on the day the contract comes into force, the tax on insurance premiums collected must be remitted to the Minister in accordance with the terms of section 527 of the Act.

“The issue at stake here is that the customer voluntarily fulfills his obligation, the payment of the amount corresponding to the premium, which includes the tax on insurance premiums, before the arrival of the suspensive term agreed between the parties and that the (insurer) collect this amount although they are technically not yet entitled to it.”

On top of that, under article 2398 Civil Code, this contract is formed as soon as the application is accepted by the insurer, even if it takes effect at a later date, added the Appeal Court. The enforceability of the reciprocal obligations of the parties is then simply suspended until the date fixed, concluded the Appeal Court.

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