MANITOBA’S NEW TAX ON LIFE, HEALTH AND DISABILITY INSURANCE – Update

Jun 14, 2012 | Corporate Member News

 

Special From Graham Starmer, President and CEO, The Manitoba Chambers of Commerce

June 14th, 2012

We are pleased to note that the Manitoba government has backed down on part of its plan to start charging sales tax on insurance politics.  Finance Minister Stan Struthers has amended a budget bill to exempt disability, critical illness and accidental death and dismemberment insurance from the seven per cent provincial sales tax.  Premier Greg Selinger says the insurance industry made the case that the tax should not be applied to such policies.

The budget in April brought in tax for some kinds of insurance, including home, mortgage and group health plans.   Other kinds of insurance remain tax-exempt, including automobile and personal health insurance.

We appreciate the Government’s consideration for this effort.

Background

Canada’s life and health insurers had expressed their deep concern and disappointment with the Manitoba government’s plan to impose the Retail Sales Tax (RST) on individual disability insurance, critical illness insurance and group disability insurance coverage for Manitobans.

“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 Canadian Life and Health Insurance Association (CLHIA). Manitoba-based Great-West Life and Wawanesa Life are both members 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,” Swedlove said. For example, if Manitobans can no longer afford privately administered disability and critical illness due to this tax burden, the public sector will need to provide funding for needs that are currently covered by those products. A sales tax on group insurance policies would also raise costs for Manitoba companies, putting them at a disadvantage with regards to their competitors in other provinces.

Furthermore, the life and health insurance industry expressed its concern at the expanded scope from the initial budget announcement, and the lack of consultation with the industry. “This is a major expansion of the tax on consumers from what was announced on Budget Day,” noted Swedlove.

The proposed legislation would now apply to premiums associated with disability, critical illness and accidental death and dismemberment for both group and individual insurance policies, as well as for all forms of group creditor insurance and a significant number of individual life insurance policies.

Canada’s life and health insurance industry directly employs almost 7,000 Manitobans and has approximately $17 billion invested in the province, primarily in long term investments in government bonds and other employers, creating jobs for many more Manitoba residents.

The Canadian life and health insurance industry provides a wide range of financial security products such as life insurance, annuities (including RRSPs, RRIFs and pensions) and supplementary health insurance, to about 26 million Canadians. Established in 1894, the CLHIA is a voluntary association whose member companies account for 99 per cent of Canada’s life and health insurance business.

An urgent, private joint letter was sent to Minister Stan Struthers about this urgent matter, in which the Presidents of Sun Life Financial Canada, the Great-West Life Assurance Company, Manulife Canada, Manitoba Blue Cross and the Wawanesa Life Insurance Company expressed their concern and requested a meeting regarding the issue.

The Manitoba Chambers of Commerce expressed deep concern about this issue and how it could affect our membership and their businesses and called upon Minister Struthers to take another look at the implications of this Bill and to hear the stakeholders’ concerns on this issue.  We are pleased that there was a second look at this imposition and that the government reversed its original decision.

Their  joint letter  sent on June 13 to Minister Struthers expressed the deep concern with the proposal contained in the draft legislation for Bill 39 (Part 5), to extend the Retail Sales Tax  (RST) to cover individual insurance, non-life insurance and disability insurance products.

The tax proposed in the draft legislation would  have applied to premiums associated with disability, critical illness and accidental death and dismemberment for both group and individual insurance policies, as well as for all forms of group creditor insurance and a significant number of individual life insurance policies. We believe it is critical to the well-being of Manitoban individuals, families and employers, that all individual life insurance and non-life products and disability insurance products under group insurance be exempted from the proposed tax.

No other Canadian province applies a RST to life and health insurance premiums on policies sold to individuals.Moreover, levying a sales tax on insurance policies is not in the best interest of Manitobans. The imposition of sales taxes increases the costs of protection and discourages Manitobans from purchasing insurance. This puts Manitoba families at greater financial risk in the event of a health problem, a disability or a death.

These families will be increasingly dependent on provincial government services. Discouraging prudent action by individual Manitobans may ultimately add to the province’s fiscal burden rather than generating positive net fiscal revenue. For example, the public sector may be compelled to generate more health and social resources to provide funding for needs that are currently covered by privately administered disability and critical illness insurance. A sales tax on group non-life and creditor insurance policies would also raise costs for Manitoban companies, putting them at a disadvantage with regards to their competitors in other provinces.


 

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