Federal budget measure prevents foreign branches of insurers from avoiding tax

Loophole could soon be closed preventing business from being shunted overseas

Federal budget measure prevents foreign branches of insurers from avoiding tax

Insurance News

By Lyle Adriano

Following the recent disclosure of Canada’s federal budget for 2017, a proposal for an international tax measure was also revealed – one that could prevent Canadian life insurers from abusing a tax loophole by shunting their business to their foreign branches.

The budget documents called for amendments to the Income Tax Act, specifically changes to prevent income from the insurance of Canadian risks from being transferred to a foreign branch of a Canadian life insurer, where it would qualify for tax-free treatment in Canada and favorable tax rules on repatriation. This new rule would be similar to the anti-avoidance rule in the Foreign Accrual Property Income (FAPI) rules.

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MNE Tax reported that the new provisions would apply where 10% or more of the gross premium income earned by a foreign branch of a Canadian life insurer is premium income in respect of Canadian risks.

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The new law would deem the insurance of Canadian risks by a foreign branch of a Canadian life insurer to be a part of a business carried out by the life insurance company in Canada - and the related insurance policies to be life insurance policies in Canada.

To ensure the integrity of the proposed rule, further suggestions were made for the introduction of complementary anti-avoidance rules.


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