Manitoba’s new tax moves are drawing criticism from both Canada’s life and health insurers and financial advisors.
The province on individual disability insurance, critical illness insurance and group disability insurance coverage. Both the Canadian Life and Health Insurance Association (CLHIA) and Advocis, the financial Advisors Association of Canada, have issued statements condemning the move.
“This is not good public policy. It will increase the cost to Manitoba businesses, and more importantly, to families trying to protect themselves in the event of disability. Adding sales tax will put them at greater financial risk,” said Frank Swedlove, president of the CLHIA. “Discouraging Manitobans from protecting their families and businesses may ultimately add to the province’s fiscal burden rather than generating positive net revenue.”
“The move today by the Manitoba government will make critical illness and disability insurance more costly for consumers,” said Greg Pollock, president and CEO of Advocis. “While it will generate some short-term revenue, it will lead to more government expenditure on health care in the long term.”
Both organizations argue that a sales tax on group insurance policies would raise costs for Manitoba companies, putting them at a disadvantage with regards to their competitors in other provinces.
“Without taking the appropriate time to consult with industry and policy-holders—average Manitoba families and small businesses—the government is moving ahead with little regard for the impact this budget bill will have,” Pollock added.
After an amendment this week, the proposed legislation will now apply a 7% sales tax to a group life insurance premiums as of July 15, 2012. Drug and dental, disability, critical illness, accidental death and dismemberment, and savings arrangements (RRSPs, etc.) will be non-taxable whether they are group or individual policies, says Ron Sanderson, director, policyholder taxation and pensions, CLHIA. “Individual life insurance will be non-taxable, but there is a possibility that some third-party owned individual life policies will be taxable,” he adds. SmallBizAdvisor is investigating what will be taxable.
The amendment addressed industry concerns with the proposed legislation differed from what has been outlined in the Manitoba budget on April 17th). “The Budget legislation introduced on June 6th expanded the tax base in several ways. While it maintained an exemption for supplementary medical and dental insurance, it brought disability, critical illness and accidental death and dismemberment insurance into the tax base for both individual and group policies,” explained Sanderson.
“Moreover, it defined “group insurance contract” to include “third party” individual life insurance policies meaning where the owner and the “measuring life” were not the same individual. Thus, corporately-owned individual life insurance for key persons and corporately-owned or “criss-cross ownership” policies used to finance share redemptions or other buy-out strategies were swept into the tax base,” he said.
Today, CLHIA expressed appreciation for the amendment and the Manitoba government’s clarification on the issue and their responsiveness to industry concerns.