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Before the implementation of the HST, Ontario Retail Sales Tax (RST) applied at a rate of 8 percent to a broad range of goods and selected services. It also applied to premiums for certain types of insurance, including group insurance and contributions paid into funded plans. Automobile insurance premiums were exempt from RST. Insurance premiums in general are exempt from the federal Goods and Service Tax (GST) as they are considered financial services.
When Ontario joined the HST system on July 1, 2010, it substantially eliminated its PST on goods and services. However, it retained its PST of 8 percent on insurance premiums, as before. Automobile insurance premiums will remain exempt from this tax. Consequently, insurance premiums as financial services are exempt under the HST, but taxable at 8% for PST.
The 8 percent tax PST does not form part of the HST and therefore does not qualify for an input tax credit. It will continue to be a cost to the insured party.
Some purchasers of insurance products may be entitled to an exemption from the RST. To claim the exemption, the purchaser must provide the insurance provided with a valid Purchase Exemption Certificate (PEC)
