Why the BC tax collector tried to burn Mutual Fire for an additional $ 4.5 million
British Columbia Income Tax Commissioner to review decision to charge Mutual Fire Insurance Company of British Columbia an additional $ 4.5 million in premium taxes and interest for the years 2012 and 2013 tax.
Mutual Fire appealed the decision of the provincial tax authorities, which stemmed from an audit.
British Columbia Supreme Court Justice Geoffrey Gomery on Wednesday issued a ruling that referred the case back to the Tax Commissioner for further consideration.
British Columbia law requires insurers in the province to pay a tax to the province of 4.4% on net taxable premiums for the year received or receivable under contracts of property and casualty insurance. car insurance.
A premium tax exemption exists if the insurer is “a purely mutual company in respect of any year in which at least 50% of the net premium income in British Columbia of the mutual company is derived from insurance of agricultural property or insurance of churches, schools or other religious or charitable institutions.
In its tax returns, Mutual Fire Insurance (MFI) said the exemption applied in 2012 and 2013. The carrier said of its net premiums of $ 32.39 million in 2012, $ 16.92 million (or 52.2%) were attributed to agricultural insurance. In 2013, the MFI reported that $ 17.398 million (50.77% of total net premiums of $ 34.37 million) came from agricultural insurance.
But in 2012 and 2013, those farm insurance amounts included liability insurance premiums of $ 926,198 and $ 1.108 million, respectively. The British Columbia Tax Commissioner argued that liability premiums for farm insurance should not be factored into the calculation of premiums “derived from farm property insurance”.
By subtracting the liability premiums, Mutual Fire’s premiums for farm property would be less than 50% of its total premium in 2012 and 2013.
The tax commissioner argued that Mutual Fire’s agricultural property insurance premiums were only 49.37% and 47.54% of the insurer’s total premiums in 2012 and 2013, respectively. The statutory auditor came to this conclusion after a 2016 audit of Mutual Fire’s income tax returns from 2011 to 2015.
The provincial finance ministry argued that âfarm property insuranceâ is not the same as âfarm insuranceâ or âfarm liability insuranceâ. Therefore, if the intention of the exemption was to include premiums for farmers’ liability coverage, the word property should be omitted in its entirety to read “derived from farm insurance”, he said. argue the Ministry of Finance.
Mutual Fire appealed the decision of the tax commissioner to the delegate of the Minister of Finance, who confirmed the position of the tax commissioner. Mutual Fire then appealed the decision of the delegate of the Minister of Finance to the court.
In allowing Mutual Fire’s appeal against the Minister of Finance’s delegate, Justice Gomery ruled that Mutual Fire’s property and casualty agricultural policies could be considered as insurance on farm property.
âWhile the liability coverage offered under the policies is not property insurance, in ordinary language and from the perspective of a farmer buying the insurance, the important point is that the policies provide protection. against the various risks associated with farm ownership, including the risk that the farmer may be sued personally in relation to obligations to third parties as owner and occupant of the farm, âJustice Gomery wrote.
The farm property exemption was originally a federal rule that applied across Canada. The premium tax dates back to a federal law in World War I, while the farm property insurance exemption dates back to the Great Depression of the 1930s, Justice Gomery noted in Mutual Fire Insurance Company of British Columbia v British Columbia.
In 1956, the federal government repealed part of the Excise Tax Act, imposing a tax on insurance premiums; the provinces imposed the same tax. In British Columbia, the Income Premiums Tax Act took on its current form in 1996.
The purpose of the exemption is to benefit mutually insured farmers by making it less costly for them to obtain insurance, Justice Gomery wrote.
âIt goes back to the origins of the exemption during the extraordinarily difficult times of the Great Depression, when what we now call food insecurity was a harsh reality in Canada. Although economic conditions have fortunately improved, this objective remains unchanged. “
Commenting on the historical background to the exemption, Justice Gomery doubted whether the federal government in the 1930s considered liability insurance when it first introduced the agricultural product exemption.
âAlthough it appears that the wording of the law has since been considered, particularly when the tax and exemption were moved from the Excise Tax Act to the PIA in 1956 and 1957, the legislature of the British Columbia simply kept the exemption in the same terms. “
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