The Saskatchewan government’s plan to introduce a six per cent sales tax on individual life insurance premiums as of Aug. 1, 2017 is unfair, according to the Canadian Life and Health Insurance Association (CLHIA).

Ron Sanderson, director, Policyholder Taxation and Pensions for the CLHIA told The Insurance and Investment Journal in an interview that the new tax could discourage Saskatchewan consumers from saving and investing within life insurance policies. The tax affects insurance products and leaves banking and mutual funds products exempt, he pointed out. “It’s like saying: don’t buy insurance, buy mutual funds and banking products instead.”

Exempt until August 1

The province will allow a tax exemption on permanent life insurance policies issued before Aug. 1, 2017. The exemption will also apply to their future premiums. Universal life insurance policies will also be included under this exemption. Riders added to permanent policies implemented before Aug. 1, 2017, will not be taxed either.

The tax will not only impact individual life insurance products, but also living benefits products like disability insurance, critical illness insurance and long-term care insurance, as well as group insurance, underlined Sanderson. The tax will not affect annuity products nor life reinsurance. “They already tax the insurers on the front line. It would be like taxing the same dollar twice,” he said.

Combined tax of over nine per cent

The CLHIA closely monitors the level of taxation on life insurance products, which it would like to see lowered. Sanderson notes that the tax will be added to a pre-existing three per cent tax, which is integrated into the premium that insurers charge to their clients. The premium tax varies between provinces, from two to five percent. Saskatchewan’s new six per cent tax will apply to the total premium. “We end up with a combined tax of over nine per cent. It’s not a good public policy to tax insurance premiums. It discourages consumers from buying insurance for themselves and their families, and discourages employers from buying it for their employees,” Sanderson said.

Oil and gas royalties declining

He is not surprised to see Saskatchewan make this decision. “Saskatchewan is very dependent on gas and oil. With oil prices dropping, government royalties are dropping as well. They have to find cash sources elsewhere,” Sanderson said. Whether other provinces will follow Saskatchewan’s lead is certainly a concern for the CLHIA, he adds.

Sanderson believes, however, that the Quebec example could make other provincial governments think twice. “In 1985, the Quebec government introduced a tax on individual and group insurance products, under Pierre-Marc Johnson. Defeated in 1986 by Robert Bourassa, the new government not only cancelled the tax on individual insurance products, but reimbursed those who had paid it. But Quebec kept the tax on group insurance. Quebec learned the lesson that it isn’t a good policy to tax premiums, because it interfered with the market by discouraging savings within insurance products and encouraged people to buy banking products,” Sanderson observed.

Industry expresses opposition

In addition to the CLHIA, other industry stakeholders have been expressing their concerns about the coming tax. In June, the Canadian Snowbird Association denounced the taxation of travel medical insurance premiums and The Edge Benefits issued a warning about the proposed tax in May. Meanwhile, The Independent Financial Brokers of Canada (IFB) has been encouraging its members to object to the tax on premiums.