New Tax Will Boost Operating Costs: IBC

The harmonized tax introduced in last week’s Ontario budget will likely mean higher operating costs for insurers in the province, and could mean higher premiums for consumers.

The blended 13% tax rate-which combines the GST and PST, and is slated to take effect in July, 2010–will affect various costs, like claims-related legal fees, that traditionally only included a single tax, according to Don Forgeron, the Insurance Bureau of Canada’s (IBC) vice president, Ontario. “If harmonization takes place the way it did in the Maritimes, there will be an increase in operating costs,” Forgeron told CI Friday.

After the transition to one tax, consumers buying P&C products will continue to pay the 8% retail sales tax on non-auto policies, including property and commercial insurance. Reinsurance contracts, however, remain exempt.

But with insurers bearing the brunt of the combined tax, “it’s not a positive development for consumers,” Forgeron said. “If history is our guide, that passes on costs. Since there’s only one payer [for the blended tax], it will find its way into premiums.” Though, he added, “the last thing we’d like to see is an increase in premiums.”

The province’s tax rates on P&C insurance products are the highest in all of the G7 countries, according to the IBC.

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