A supplier of an extended warranty purchases insurance to cover potential losses on client compensation under the warranty. Where the supplier is the retailer, distributor or manufacturer of the good, the tax on insurance premiums applies to the insurance premium paid to the insurer or insurance broker.
A recent judgment of the Court of Appeal of Québec found that an extended warranty on a good is not an insurance contract when the warranty is sold by the retailer, distributor or manufacturer of the good. The insurance purchased by suppliers of extended warranties is therefore not reinsurance.
Consequently, as of March 1, 2010, Revenu Québec will require that the tax on insurance premiums be charged on the insurance premiums paid by suppliers of extended warranties.
The tax on insurance premiums must be indicated separately from the premium on the invoice. Also, the tax does not qualify for an input tax refund.
The GST and the QST do not apply to the insurance premium. However, the GST and the QST apply to the sale of an extended warranty on a good.