Institut
C.D.
HOWE
Institute
commentary
NO. 522
Piling On – How
Provincial Ta xation
of Insurance Premiums
Costs Consumers
Most consumers don’t know that provinces levy a tax on their insurance premiums – making
insurance more expensive and lowering demand. This insurance premium tax, once meant
as an alternative to the corporate income tax for insurers, has long been obsolete.
The provinces should rethink their approach to insurance taxation to
make it more equitable and less costly for consumers.
Alexandre Laurin and Farah Omran
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Daniel Schwanen
Vice President, Research
C N. 522
October 2018
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is Director of Research
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Insurance premiums have been taxed by Canadian governments for so long – some provinces and
municipalities collected small levies as early as the late 1800s – that they’ve become a xture rarely
discussed in the literature and the nancial press. For many years, insurance premium taxes were collected
from insurers as an alternative to taxing their prots. But this practice is now long gone since all Canadian
governments tax the corporate income of insurance companies, in addition to premium taxes and other
taxes and levies.
Most insurance consumers do not know that a provincial insurance premium tax (IPT) ranging from
2 percent to 5 percent is levied on their premiums. In addition, ve provinces charge a retail sales tax
(RST) ranging from 6 to 15 percent on top of the premium taxes for certain types of insurance. In Quebec
and Ontario, the RST rates of respectively 9 and 8 percent generally apply to group life and health
insurance, and property and casualty insurance (although Ontario excludes auto insurance). Saskatchewan
is the latest province to introduce an RST. Since insurance is a nancial service, premiums are exempt from
GST/HST.
So why do provinces still tax insurance premiums? While IPTs and RSTs on premiums are largely
invisible to customers on whom the burden ultimately falls, they generate more than $7 billion of stable
and growing provincial government revenues – representing about 7 percent of all provincial taxes
collected on goods and services.
Premium-based taxes increase the price of insurance products and lower the demand for them. We nd
that an increase of one percentage point in the provincial IPT rate leads to a 10 percent decrease in the
number of life insurance contracts sold. Reduced insurance coverage for natural disasters such as oods
and earthquakes, other catastrophes, relief to a deceased's family, or relief of the nancial burden of illness
and disability may lead to increased cost pressures on government budgets down the road.
Canadian governments should revisit and reassess the taxes imposed on insurance products. At a
minimum, IPT liabilities should be made creditable against corporate income tax liabilities, partly
restoring their original role as a substitute for taxing prots. And provinces that impose an RST on IPT-
inclusive premiums should lead the way and eliminate this form of double taxation. A more ambitious
reform would remodel the patchwork of transaction taxes for insurance services to a comprehensive and
broad-based, value-added system, bringing down the insurance industry's high transaction tax burden and
ensuring greater comparability with other industries.
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2
Now, provinces collect about $7.3 billion in excise
and retail sale taxes on these premiums, in addition
to $4.4 billion in corporate income and other taxes
on insurers. Even with such a long history and high
tax yield, there has been little study on the taxation
of insurance premiums. In general, tax policy
analysts have not paid much attention.
Bringing new policy attention to this important
but ignored topic is the primary motivation for this
Commentary. As we demonstrate, the insurance
premium taxes combined with multiple sales taxes
paid or remitted by insurers increase the cost of
insurance for consumers but bring in considerable
revenues for provincial governments in particular.
Hidden in the premiums paid, these tax costs
reduce the demand for insurance.
For many individuals and businesses, insurance
provides nancial protection against uncertain
events and, as such, can be likened to a form of
precautionary savings. Insurance creates value
by pooling similar individual and business risk
exposures. It is a nancial intermediation product
to the extent that premiums create a nancial claim
on the insurance pool, with regulated insurance
companies managing the pool and acting as the
intermediary with policyholders while assuming the
residual risk.
Although the federal government does not tax
insurance premiums, provincial governments do.
Most insurance consumers do not know that a
provincial insurance premium tax (IPT) ranging
from 2 percent to 5 percent is levied on their
premiums. In addition, ve provinces (including
Ontario and Quebec) charge a retail sales tax on top
of the premium taxes for certain types of insurance.
In this Commentary, we rst provide a broad
lay of the land for insurance premium taxation
– its origins, its role as consumption and wealth
accumulation taxes, and as a revenue source for
governments. Next, we explore policy issues,
including a discussion of how the tax system for
insurance has evolved beyond its original policy
motivations, how multiple transaction taxes lead to
high and arbitrary eective tax rates on insurance
consumption, the impact of potential wealth
taxation on tax fairness and how premium taxes can
lead to fewer people purchasing insurance coverage
with the potential to increase cost pressures on
government budgets.
Finally, we discuss policy options, including
the elimination of provincial IPTs and/or the
elimination of retail sales taxes on tax-inclusive
premiums. Because the provincial scal losses would
be large, we propose a reshaping of the transaction
tax system that would make insurance services
subject to value-added taxation.
Taxes on insurance premiums have been a xture of the Canadian
tax system since the early 1900s when insurance companies were
subject to very little other tax.
e authors would like to thank Dalton J. Albrecht and Stephen J. Rukavina whose work was inuential background
research and inspired the analysis in this study. e authors thank Pascal Dessureault, Nadja Dre, Kenneth James
McKenzie, Noeline Simon, Kevin Wark, members of the Fiscal and Tax Competitiveness Council of the C.D. Howe
Institute and anonymous reviewers for comments on an earlier draft. e authors retain responsibility for any errors and the
views expressed.
3
Commentary 522
Taxes on Insurance Premiums–
Lay of the Land
e purpose of insurance is nancial protection for
a loss and/or cost. Even without insurance products
per se, individuals can insure themselves from
unexpected occurrences through personal savings.
For example, a person may want to save to cover
liabilities and expenses that are anticipated to arise
upon his/her death. Assuming they have disposable
income, people can always self-insure, and every
instance of self-insurance involves the accumulation
of savings. At its roots, insuring against potential
and real outcomes is a form of precautionary savings.
Self-insurance, however, can be very inecient
for those who over save and those who under
save. By acting as the intermediary for individuals
exposed to a similar risk, an insurer pools individual
risks and reduces individual costs (the premiums)
of insuring against an uncertain outcome. Insurance
products create cost certainty for the insured
persons: they determine how much they need to
cover a risk, an amount that is often much lower
than self-protection (precautionary savings) would
require. Moreover, insurance allows for the transfer
of risk from risk-averse consumers to insurance
companies.
No GST/HST is charged on the sale of
insurance policies. Indeed, most nancial services
are exempt from GST/HST since it is often
dicult to distinguish the value-added provided
by the nancial intermediation activity (which
we would like to tax) from simple nancial ows
and compensation for underwriting risk (Firth
1 When a Canadian resident purchases insurance from an unlicensed insurer or an unlicensed intermediary (broker), which
is typically a foreign insurance provider, the tax treatment diers. Under the Excise Tax Act, net premiums of such insurance
products are subject to a 10 percent federal excise tax (FET). However, the FET does not apply to reinsurance, life, personal
accident, sickness and marine-risk insurance (Canada Revenue Agency 2014). In addition, the resident is required to self-
assess and pay the provincial insurance premium tax (Albrecht and Rukavina 2016). It will also be necessary for the broker
– or if unavailable, the resident – to collect and remit any applicable sales tax. Some provinces have specied dierent
premium tax rates for these cases. For example, BC imposes a 7 percent tax on the insured if insurance is purchased from an
unlicenced insurer.
and McKenzie 2012). Being exempt, the insurer is
unable to claim input tax credits for the GST/HST
it incurs on operational expenses and claims, and
eectively stands in the shoes of the end consumers,
paying those taxes on their behalf and embedding
their cost in the premiums themselves.
However, all provinces and territories impose
IPTs, varying in amount by province and by
insurance product. In addition, ve provinces
levy retail sales taxes (RST) on some insurance
premiums: Ontario, Manitoba, Quebec and, most
recently, Saskatchewan along with Newfoundland
and Labrador (Table 1).
In this Commentary, we focus on provincial
premium taxes on insurance policies sold by
domestic licensed insurers to Canadian residents.
1
Recently, these tax rates have been rising.
Life Insurance
ree-quarters of all life insurance policies in force
provide coverage up to an agreed upon date. Labelled
“term insurance,” these products are primarily
intended to protect families against the risk of one
member dying prematurely and leaving debts and
an income to replace. About one-half of all term
insurance products are purchased by individuals,
with the rest bought on a group basis (and priced
according to the characteristics of the group as a
whole) through an association or an employer.
e remaining one-quarter of all life insurance
policies are permanent and purchased on an
individual or corporate basis. Premiums may
be paid over a set number of years or for life. It
4
provides protection for premature death while
allowing reserves to accumulate within the policy.
As the permanent life insurance contract ages,
these reserves can be used to fund future premiums,
and extracted to supplement retirement income or
fund emergencies. Many permanent life insurance
contracts, therefore, resemble savings products in
which the insurer guarantees a death benet to a
survivor, but in which an accessible cash value grows
as a result of the returns on invested premiums
(which may be guaranteed as well).
e Income Tax Act (ITA) regulates the taxation
of the investment income earned on the savings in
a life insurance policy as well as on gains from the
disposition of an interest in a policy. An exemption
test is applied to determine whether a life insurance
policy is more protection oriented or savings
oriented and, in turn, if it is an exempt or non-
Table 1: Provincial Insurance Premium Tax Rates (to licensed insurers) and Retail Sales Tax Rates, 2017
Notes: (1) On P&C only. (2) Group life and health, and P&C. (3) Group life and health, and P&C. Auto insurance exempt. (4) Group life
and P&C. (5) P&C.
*Quebec has an additional 0.48% compensation tax, which was originally planned to decrease to 0.3% after March 31, 2017 and to be phased
out after March 31, 2019, but which has been extended until 2020. Ontario and BC IPT rates on P&C vary. ey are 3.5% (ON) and 4.4%
(BC) on property, and 3% (ON) and 4% (BC) on all other P&C products.
Sources: Albrecht and Rukavina (2016), PWC (2017), and authors' compilation from publicly available sources.
Province
Life, Accident and
Sickness
Property and
Casualty
Additional Fire
Premium Tax
Retail Sales Tax
(percent)
Newfoundland and Labrador 5.00 5.00
15.00
(1)
Prince Edward Island 3.50 3.50 1.00
Nova Scotia 3.00 4.00 1.25
New Brunswick 2.00 3.00 1.00
Quebec* 3.48 3.48
9.00
(2)
Ontario* 2.00 3.50
8.00
(3)
Manitoba 2.00 3.00 1.25
8.00
(4)
Saskatchewan 3.00 4.00 1.00
6.00
(5)
Alberta 3.00 4.00
British Columbia* 2.00 4.40
Yukon 2.00 2.00 1.00
Northwest Territories 3.00 3.00 1.00
Nunavut 3.00 3.00 1.00
5
Commentary 522
exempt policy.
2
If the policy qualies as exempt, the
investment income is not subject to accrual taxation
for the policyholder, unless it is withdrawn rather
than paid out due to death or disability. Instead, the
ITA imposes a 15 percent investment income tax,
payable by the insurers on deemed net-investment
income earned within the policy.
So if the policy is non-exempt, annual policy
gains are taxed on an accrual basis in a similar
manner to interest income.
3
And if there is a
disposition of an exempt policy prior to the death
of the insured, any policy gain (dened as the
dierence between the proceeds of the disposition
and the adjusted cost basis of the policy) is subject
to tax.
4
ere are currently some 90 active life insurers
and annuity providers in the Canadian marketplace.
In 2016, they paid $12 billion in life insurance
benets to Canadians. In the same year, they
accrued $8.3 billion for estimated future claims and
received $20.3 billion in life insurance premiums on
in-force and new policies. More than three-quarters
(79 percent) of premiums were generated from
individual policies, while the remaining 21 percent
came from group policies.
Overall, some 22 million Canadians own
about $4.5 trillion in life-insurance coverage, with
an average protection of $404,000 per insured
household. Individual insurance forms the majority
of life-insurance coverage, with individual term
life insurance accounting for more than half such
insurance (CLHIA 2017).
IPT rates on life insurance range from 2percent
to 5 percent (Table 1). Ontario, Manitoba and
Quebec apply RSTs of 8 percent, 8 percent and
2 Currently, nearly all life insurance policies available in Canada are exempt (Wark and O’Connor 2016).
3 See https://www.n.gc.ca/drleg-apl/lip-pav-n-eng.pdf.
4 See https://www.n.gc.ca/drleg-apl/lip-pav-n-eng.pdf.
5 is change came after Saskatchewan Party leader Scott Moe, who had made restoring the exemption part of his campaign,
became the province’s premier on Feb. 2, 2018. Quebec implemented a 9 percent sales tax on all individual life and health
insurance in 1985 but narrowed its scope the following year to only group life and health coverage.
9 percent, respectively, on group life insurance
premiums. Saskatchewan briey charged RST on
both individual and group life insurance, eective
on Aug. 1, 2017 – making it the only jurisdiction
to tax individual life insurance – but retroactively
repealed the tax a few months later.
5
Health Insurance
Health insurance is purchased to fund the cost of
medical expenses not covered by government plans
and/or to provide protection against income loss
due to disability, serious accidental injuries, long-
term care and critical illness. Health insurance
protects against unexpected expenses related to
health conditions. ese costs are for the most part
non-discretionary and can run very high.
ere are some 130 health insurance providers in
Canada, with 70 of them simultaneously providing
life insurance. In 2016, they provided more than
25 million Canadians with supplementary health
insurance, and about 86 percent of total health
insurance premiums collected were paid out as
benets. Since health insurance has a less signicant
long-term savings element than life insurance,
it shows a high annual turnover of premiums to
benets (CLHIA 2017).
About three-quarters of all health benets were
paid out as medical-expense reimbursements such
as prescription drugs, dental and hospital expenses;
about one-fth were for disability insurance
plans. Almost all (90 percent) health insurance is
sold on a group (employers, unions, professional
associations) basis.
6
e premium tax treatment of health insurance
is similar to that of life insurance. e same IPT
rates, which dier across provinces, are levied on
health insurance. Ontario and Quebec also levy
the same RST on group health insurance. For its
part, Manitoba exempts group healthcare plans
from the RST. BC is a special case, as it exempts
premiums paid for approved medical services or
healthcare plans.
Property and Casualty Insurance
Property and Casualty (P&C) insurers cover the
loss or damage to automobiles, homes, businesses
and other properties. In some instances, the
purchase of P&C insurance is mandated by lenders
or by government policy. Lenders, for example,
often require insurance on mortgaged properties or
car loans, while a minimum level of auto insurance
coverage is compulsory in all provinces.
In 2016, there were more than 200 P&C
insurance providers in Canada. Of the almost $50
billion paid in P&C premiums, almost half was for
vehicle insurance. In addition, BC, Saskatchewan,
Manitoba and Quebec operate their own public
insurance schemes covering the compulsory
component of auto insurance (IBC 2017).
In addition to IPT on P&C premiums,
Ontario, Manitoba, Quebec, Saskatchewan and
Newfoundland and Labrador impose RST on
the sale of those insurance contracts, with auto
insurance exempt in Ontario (Table 1). Some
provinces, including Manitoba, New Brunswick,
Nova Scotia, Prince Edward Island and
Saskatchewan, levy additional or higher premium
taxes on re insurance and/or certain property
insurance.
6 See Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985).
International Experience
Canada is not the only country that charges
transaction taxes on insurance premiums. Indirect
taxes on insurance premiums, or stamp duties, are
common in most jurisdictions around the world.
In the US, every state levies an insurance
premium tax on insurers. e tax rates dier by
state, but also between domestic or out-of-state
insurers. Some states also levy a retaliatory tax,
which is the percentage dierence between the tax
rate of the domicile state and the foreign tax rate
of the jurisdiction in which the premium is written.
is means that the insurer pays the higher of the
two rates.
6
In several states, state corporate income tax
liabilities may be credited against insurance
premium taxes, but more frequently (in 40 states)
the premium tax is in lieu of the corporation
income tax. For instance, in California all insurers
pay a premium tax in lieu of all other taxes. In
Florida, insurers are subject to both premium and
corporate income taxes, but income taxes may
be credited against premium taxes. Furthermore,
to encourage jobs to locate in the state, Florida
provides for a salary credit against the insurance
premium tax.
In Europe, taxation of insurance premiums and
contracts is common and takes various forms. Table
A1 in Appendix A summarizes this tax treatment
in 27 European countries that have some form
of indirect taxation on insurance contracts. Most
countries exempt life insurance, and a few others
exempt health insurance as well. In almost all
cases, the insurer is liable to pay the tax if they are
licensed to operate in the jurisdiction; otherwise the
tax still applies and the policyholder is responsible.
Some European countries are required by law, or
7
Commentary 522
it is common practice, to inform the policyholder
of the tax separately from the premium. Over
the past two years, some countries, including
Colombia, Malta, Portugal, Slovenia, Italy and
the UK, increased their insurance premium taxes
on insurance products (EY 2015, 2016). Estonia,
Latvia, Norway and Turkey are the only European
countries included in Appendix A that have no
indirect taxation on insurance contracts (Insurance
Europe 2017).
Why Tax Insurance Premiums?
Little literature exists specically on the rationale
for provincial taxation of insurance premiums.
Originally, IPTs were seen as an alternative to taxing
the earnings of insurers. ey can also be seen as
an attempt to tax consumption, or as an indirect
attempt to tax increases of net worth. But the most
compelling reason seems to be simply that these
provincial taxes provide signicant revenues while
being largely invisible to consumers and savers.
Origins: In Lieu of Taxing Insurers’ Earnings
In the late 1800s and early 1900s, some provinces
and municipalities collected small levies on items
such as corporate capital, railway track mileage,
bank reserves and insurance premiums (Whaley
1970). For its part, the federal government rst
enacted an insurance premium tax in the 1915
Special War Revenue Act (renamed the Excise Tax
Act in 1947) to help nance the First World War. A
number of commodity taxes were also introduced
in this act, including the general manufacturer’s
sales tax that was replaced by the GST in 1991. e
insurance premium tax applied only to non-life,
7 Only the income of non-life stock insurance companies, and the portion of net earnings of a stock life insurance company
allocated to the shareholders’ fund, whether distributed as share dividends or not, were subject to corporate income tax.
However, premium taxes were credited against insurers’ income tax liability, such that only income tax liability in excess of
premium taxes was payable.
non-marine insurance premiums at a rate of
1 percent. Given the introduction of this premium
tax at a time when P&C and health insurance were
in their edgling stages of development, it did not
raise signicant tax revenues in the early years.
When the federal government implemented
a corporate income tax in the 1917 Income War
Tax Act (renamed Income Tax Act in 1948), life
insurance companies and all mutual insurance
companies were mostly exempted.
7
In eect,
insurance premium taxes were collected as a
minimum tax, in lieu of the corporate income tax.
is practice continued for decades, even for a few
years after the federal government vacated this
eld in 1957 for provinces to resume their own
premium taxes (provinces had vacated the eld in
1941 for the rst wartime tax rental agreement; see
Provincial Budget Round-Up 1957).
Clearly, Canadian governments originally
regarded IPTs as an alternative means of taxing the
earnings of insurance activities. And, indeed, the
same logic still applies today in American states
where premium taxes are viewed as a substitute for
corporate income tax.
When provinces regained the corporate
taxation eld in 1962 following the end of a
series of federal-provincial tax rental agreements
(except Quebec, which had opted out in 1952,
and Ontario in 1957), they did not reactivate their
earlier suspended corporate income tax legislation
that contained either exemption for insurance
companies’ prots or else a credit against other
forms of provincial income tax. Instead, out of
administrative convenience, corporate provincial
taxable income was dened by direct reference to
the federal Income Tax Act – which at this time only
excluded prots of mutual life insurance companies.
8
ese prots became taxable for the rst time
in 1969.
Attempting to Tax Consumption
Another possible justication for taxing insurance
premiums would be to view IPTs as an attempt to
tax consumption. Even though the tax is paid by
the insurance provider, it is triggered by a purchase
and one might expect this cost to be passed on to
consumers – just as excise taxes on alcohol, tobacco
and fuel are, for the most part, ultimately borne
by the nal customers. Moreover, sales taxes on
premiums collected on certain types of insurance in
Ontario, Quebec, Manitoba, Saskatchewan and in
Newfoundland and Labrador are straightforward
attempts to tax consumption.
Firth and McKenzie (2012) review the
literature around the taxation of nancial services
consumption in general and provide a theoretical
case for taxing the value-added component of the
nancial intermediation service when purchased by,
or on behalf of, individuals. Insurance companies
are regulated nancial intermediaries providing
value added by pooling risks in a cost-eective way.
In practice, it is dicult to accurately measure the
value added by nancial intermediation services,
especially for deposit taking institutions, which
explains why Canada and other countries exempt
most nancial services from their value-added
consumption taxes.
e value added by the insurance service is the
dierence between the premium revenue received
by the provider and the risk-adjusted present
value of the amount expected to be paid out to the
insured. Insurance services use up real resources
without a compensating increase in otherwise
taxable consumption. erefore, the portion of the
premiums used to pay for the service should be
8 As mentioned earlier, this is accomplished federally via the investment income tax for life insurance policies, even though
most such policies are exempt.
taxed under a broad-based, value-added tax. Under
this approach, a value-added consumption tax, such
as the GST/HST, should apply to the consumption
value of the nancial intermediation services, but
not to the entire premium as is currently the case
provincially (Barham et al. 1987).
Attempting to Tax Increases in Net Worth
Not only can all insurance be viewed as providing
consumption value, some types can also be viewed
as providing investment value. Insurance providers
must accumulate reserves to securely cover the
uncertain timing and extent of claims. e reserves
earn investment income on behalf of insurance
purchasers, indirectly, who are wealthier with the
insurance protection than without. Under the Haig-
Simons principle of individual income taxation, an
inuential tax policy benchmark in Canada and
around the world, all accretion to one’s economic
power should be taxed, regardless of its source.
Since taxing individuals on the implicit net-wealth
accretion within individual insurance policies is
largely impractical in most situations, premium
taxes may also be viewed as an indirect attempt
to tax this positive change in net worth at the
provincial level.
8
Generating Government Revenues
Tax systems in advanced economies seek to
achieve multiple objectives. One goal is to provide
distributional fairness, such that tax lers in
comparable situations pay relatively the same
taxes and those better able to aord it eectively
pay more. Another objective is to be neutral with
respect to economic decisions, such that the tax
system does not create unwanted distortions.
Although advanced tax systems are complicated,
9
Commentary 522
simplicity of administration and compliance
often gure in government goals. But of course
the most obvious purpose of the tax system is to
raise sucient and stable tax revenues that grow
with expenditure needs. On that score, insurance
premium taxes are a strong generator of stable
provincial government revenues.
IPTs are paid by the insurance providers and
are thus largely invisible to customers on whom
the burden ultimately falls. However, even though
it should make no dierence in theory whether
premium taxes are imposed on the insurance
suppliers rather than on the customers, the fact that
the tax is invisible to customers may inuence their
responses to it – people tend to be subjectively more
favourable to invisible (or less salient) taxes (Weber
and Schram 2013).
Plus, on the P&C side, demand for home and
vehicle insurance is relatively unresponsive to small
price changes since minimum coverage is mandated
by either government regulations or lenders.
Admittedly, relatively low price elasticity of demand
for certain products also means tax revenues
generated from their indirect taxation induces lower
economic distortions than would be generated
by corporate income taxes, for instance. All this
makes insurance premiums a prime target to raise
government revenues.
Indeed, in 2016 provincial governments raised
more than $3.2 billion in IPTs and some $4
billion in related sales taxes, for a total of $7.2
billion (Table 3). is is a substantial amount of
tax revenues, representing about 7 percent of all
provincial taxes collected on goods and services.
Canadian households indirectly support most
of this burden because taxes paid by insurers,
businesses and employers are ultimately passed on
through higher premiums, prices and lower benets.
However, this state of aairs raises fairness
issues. Households with children pay a highly
disproportionate share of IPTs and sales taxes on
premiums – in 2017, they represented one-quarter
of all households but directly or implicitly paid
about half of all premiums. Also, higher-income
households (which also tend to be families with
children) support a greater share of the premium
tax burden but to a much lesser degree than for
personal income tax (Table 2).
Policy Issues
Premium-based taxes, therefore, clearly raise a
number of policy issues. Conceived at a time when
income taxes and value-added taxes either did not
exist or were in early development, they might
be considered largely obsolete in a modern tax
system, particularly as insurance companies now
generally pay income tax. Second, in some cases
the same premiums or their proceeds are eectively
taxed multiple times in multiple transactions.
ird, they resemble a tax on the capital savings of
policyholders. And lastly, higher insurance prices
induced by taxes can lead to lower demand and less
take up of insurance.
An Obsolete Tax
As pointed out earlier, Canadian governments
originally regarded IPTs as an alternative to
taxing the earnings of insurance companies, or as
a minimum tax since premium tax liabilities were
creditable against other tax liabilities. As well,
premium taxes were regarded as easier to apply. is
same logic still prevails today in American states.
But now all Canadian governments tax the
corporate income of insurance companies, in
addition to premium taxes and other taxes and
levies. In fact, the insurance industry is now one
of the most heavily taxed industries in Canada
as a share of its value added. Indeed, life and
health insurers contributed $2.5 billion to federal,
provincial and local governments in 2016 through
10
taxes on their corporate income, capital, property,
investment income, operating expenses and payroll,
9
on top of $1.4 billion paid in IPTs and $2.3 billion
collected in provincial RSTs on certain premiums
(Table 3). In fact, governments collected as much
in corporate income and capital taxes ($1.4 billion)
from life and health insurers as they collected in
insurance premium taxes.
P&C insurers contributed even more to federal
and provincial tax coers, if we account for the sales
taxes they paid on insurance claims – $1.9 billion
in 2016 (Table 3). ey also paid $600 million in
corporate income taxes, plus $1.1 billion in taxes
on business realty, payroll and operating expenses,
as well as on provincial health levies. ey remitted
9 Excluding payroll taxes collected on behalf of employees.
$1.7 billion in provincial sales taxes collected
on premiums and paid $1.8 billion in insurance
premium taxes – much more than in corporate
income taxes (although the dierence between the
two was much less in 2015).
Canada’s tax regime has evolved considerably
since insurance premium taxes were rst introduced,
moving beyond its original purpose when
governments derived a substantial share of their
revenues from customs and excise taxes. Since
then, reliance on customs duties and excise taxes
has greatly diminished, the general manufacturer’s
sales tax has been eliminated and replaced with the
GST/HST, most capital taxes have been eliminated
or reduced, and governments rely considerably
Table 2: Percentage Distribution of IPTs and Sales Taxes on Premiums, Directly or Implicitly Paid, by
Income Quintiles and Household Types (2017)
Source: Authors’ simulations using Statistics Canada’s Social Policy Simulation Database and Model, version 26.
Household Income Quintile
Share of All
Households
Share of All Premium and
Sales Taxes
Share of All Personal
Income Taxes
(percent)
Q1 – Low 20 6 1
Q2 – Low-to-middle 20 11 4
Q3 – Middle 20 18 11
Q4 – Middle-to-high 20 27 21
Q5 – High 20 39 62
Household Type
With children 25 48 34
No children 45 34 49
Elderly no children 30 18 17
11
Commentary 522
more on income taxes and value-added taxes, which
better apply taxes to income. Premium taxes are
considered by some to be a “blunt instrument” and
may be viewed as obsolete in a modern tax system.
Multiple Transaction Taxes Compound the
Burden on Insurance Consumption
Providing insurance involves many sales transactions.
An insurance product is rst purchased by an
individual, a group of individuals or a business
through the payment of insurance premiums. ese
premiums are subject to taxes, which are hidden
in the prices purchasers pay. In some provinces,
the premiums are also subject to additional
sales taxes. en, insurance providers will incur
operating expenses in the pursuit of their nancial
intermediation activities, some of which will also
be subject to sales taxes. Finally, the insurers issue
claims payments on which they may also pay sales
taxes (e.g., automobile or residential repairs, or
physiotherapy treatments).
Since insurance premiums are GST/HST
exempt, insurance providers cannot claim the GST/
HST they paid on operational expenses as input tax
credits to reduce their tax liability. All GST/HST
and retail sales taxes paid on intermediate inputs are
passed on to consumers in higher premiums. GST/
HST and retail sales taxes paid on claims, as well as
IPTs, have the same eect: they inate premiums
charged. Similarly, retail sales taxes are charged on
the inated premium values, which are inclusive of
the other taxes – a tax on top of the other ones. is
cascading makes the total eective consumption tax
Table 3: Total Taxes Paid by Insurance Industry, $ Millions
Source: Canadian Health and Life Insurance Association (CHLIA) and Insurance Bureau of Canada (IBC) industry publications.
Type
L&H Industry P&C Industry
2015 2016 2015 2016
($Millions)
Corporate income taxes 789 1,096 1,268 635
Insurance premium taxes 1,305 1,433 1,662 1,787
Provincial sales taxes on premiums 2,222 2,332 1,594 1,723
Sales taxes on claims - - 2,174 1,866
Sales taxes on operating expenses 276 302 458 385
Payroll taxes (employers’) 289 311 290 326
Health levies - - 323 341
Property and business taxes 414 412 34 30
Capital taxes 271 290 - -
Investment income taxes 131 121 - -
Total tax contribution 5,697 6,297 7,803 7,093
12
rate on premiums arbitrarily and confusingly higher
than the upfront tax rates.
A good basis for taxing the consumer value
of nancial intermediation can be found in the
literature on value-added taxation. In essence,
business value added is what is left once the cost
of all production capital inputs has been deducted
from the sales of goods and services. It would be
dicult in practice to identify and tax the value
added of an insurance service since value added
is conceptually the margin between premiums
received and risk-adjusted claims paid out – both
transactions may be spread out over a number of
years, and most claims are not subject to sales tax.
But the current system certainly does not limit itself
to produce a tax on the value added.
Two methods exist to tax business value added:
• the traditional invoice-based tax on sales, with
credits provided to businesses for tax paid on
inputs, like Canada’s GST/HST; and
• the addition-based method, which is a tax on the
sum of prots and wages, which also corresponds
to business value added.
e International Monetary Fund (IMF 2010)
recently suggested using the addition-based
method to implement value-added consumption
taxes on nancial services. Branded the Financial
Activities Tax (FAT), this addition-based VAT
was presented as a possible additional measure
beyond a new levy proposed to help meet the cost
of future nancial crises.
Figure 1: Transaction Taxes as a Percent of Value Added, 2012 to 2016
Source: Authors’ calculations. Value added is the sum of prots plus depreciation and total employee compensation. Value-added for the
Life, Health and P&C sectors is computed from Statistics Canada’s Financial and Taxation Statistics for Enterprises, along with data from the
CLHIA and IBC. Banking activity data are from annual nancial reports of Canada’s big banks (when available). Data on taxes paid come
from CLHIA (Life and Health), IBC (P&C) and Canadian Bankers Association (top six banks).
0
10
20
30
40
50
60
70
P&CLifeHealth Banking
Irrecoverable Sales Taxes on
Inputs and Claims
(GST/HST/PST)
PST on
Premiums
Insurance
Premium Tax
13
Commentary 522
In the insurance industry, transaction taxes –
provincial insurance premium taxes, retail sales taxes
on premiums and GST/HST/RST on claims and
operating expenses – represent about 51percent of
value added for the P&C sector, about 59 percent
for health insurance and about 17 percent for life
insurance (Figure 1). e burden of transaction
taxes is high and much higher for P&C and health
insurance than the highest HST rate (15 percent)
found in ve provinces. It is also much higher
than the burden faced on banking activities (about
3percent), which is limited to irrecoverable sales
taxes paid on operating expenses.
A Tax on Individual Wealth
All insurance products are fundamentally a form
of investment. Insurers pool the premiums from
all insureds, creating a pool of nancial resources
accumulating income that will eventually ow
out as future claims (minus the value added).
Since individuals use after-tax income to purchase
insurance, the additional taxes on the premiums are
akin to a tax on wealth.
10
Other savings instruments
such as bank deposits and bonds are not taxed
this way. Insurance purchasers are thus taxed more
heavily for the same lifetime consumption.
Higher Insurance Prices Negatively Impact
Consumer Demand
IPTs and retail sales taxes on premiums increase the
consumer price of insurance. Higher tax-inclusive
insurance premiums in turn worsen the problem of
adverse selection in insurance markets, increasing
the pressure on premiums as lower-risk consumers
are driven out of the market.
In our modern tax system, commodity excise
taxes are usually reserved for products such as
10 Note that various types of insurance purchases by business entities are deductible in many business-related situations.
11 Excluding the territories.
carbon-intensive fuel, alcohol and tobacco – all
products for which more consumption yields social
problems. But nancial protection against the risks
of large nancial losses, health-related expenditures,
morbidity or mortality, on the contrary, makes
insurance generally socially benecial.
e extent to which higher tax-inclusive
premiums reduce consumer demand is an empirical
question dicult to resolve due to lack of reliable
historical data. e market for individual life
insurance may be a good one to explore since we
would expect prices to impact consumer demand:
purchase decisions are made on an individual basis,
are typically funded with after-tax dollars and are
free from regulatory or institutional requirements.
Using a regression analysis (see Appendix
B), we isolate the impact of provincial IPTs on
individual life insurance purchases by controlling
for the potential impact of household income,
mortality, population aging, number of dependents
at home, ination and real interest rates, as well as
for province- and year-xed eects. We nd that
higher IPT rates are indeed associated with lower
demand for new individual life insurance policies.
However, little provincial and annual variation
among IPT rates, along with data limitations,
restricts the extent to which we can model the
underlying relationship in our data. But the results
are nonetheless statistically signicant. As it stands,
the model indicates that a one-percentage-point
increase (decrease) in the IPT rate would lead
to a more than a 10 percent national
11
decrease
(increase) in sales of individual life insurance
contracts. Using 2016 data, that decrease represents
about 77,000 policies, or $27 billion of potential
benet coverage.
14
Policy Options
Provinces need to think hard about the tax burden
they are imposing on insurance and its impact on
people. So, what should governments do?
Quebec, Ontario, Manitoba and Newfoundland
and Labrador, for example, should lead the way
by eliminating their punitive RST on premiums
(Chen and Mintz 2001). In addition, all provinces
should eliminate their insurance premium taxes
or, at a minimum, make them creditable against
downstream insurers’ corporate tax liability on
capital and income.
Premium taxes, however, generate so much
revenue that any attempt to eliminate or lower the
tax burden will be met with resistance. Some of
that could be alleviated by making the elimination
of premium taxes part of a more ambitious reform
of the current patchwork of transaction taxes for
insurance services.
Fiscal losses could be partly oset by charging
a tax on the value-added portion embedded in the
premiums (through, for instance, the addition-
based method), with a credit for sales taxes paid
by insurance providers on operating expenses and
claims. Essentially, this would translate into a
provincial VAT for the insurance industry. But such
a system would come with its own set of hurdles to
overcome.
In particular, the federal government does not
impose GST on nancial services, so the HST
rate would not be the most appropriate rate to
apply. Each province would need to legislate its
own insurance value-added tax rate. In addition,
assuming that provinces tax value added in
the insurance industry, there is no obvious
reason for leaving out value added from other –
currently untaxed – nancial services, including
deposit and credit intermediation, and for the
federal government to imitate the provinces. A
comprehensive and broad-based, value-added
tax system for the nancial services sector would
nonetheless bring down the insurance sector’s total
transaction tax burden from its current range of
17 percent to 59 percent of value added to levels
more comparable to that of other services subject
to the HST– and a more equal sharing of the total
transaction tax burden among nancial service
sector participants.
Conclusion
Insurance is one of the most heavily taxed nancial
services in Canada, with multiple taxes charged on
its prots, investment income and capital, as well
as on transactions such as premiums and claim
payments. ese transaction taxes on money going
in (premiums) and on money going out (operational
expenses and claims) compound to reach nearly
60 percent of insurance value added, which is on
top of the taxes the insurance industry pays on
corporate income and capital.
Premium-based taxes increase the price of
insurance products for consumers and lower
the demand for them. More specically, we nd
that an increase of one percentage point in the
provincial IPT rate leads to a 10 percent decrease
in the number of life insurance contracts sold. It is
reasonable to assume that higher prices would also
negatively impact the demand for other insurance
products. Reduced insurance coverage for natural
disasters such as oods and earthquakes, other
catastrophes, relief to a deceased’s family, or relief
of the nancial burden of illness and disability may
lead to increased cost pressures on government
budgets down the road.
Canadian governments should revisit and
reassess the taxes imposed on insurance products.
At a minimum, IPT liabilities should be made
creditable against corporate income tax liabilities,
partly restoring their original role as a substitute for
taxing prots. And provinces that impose an RST
on IPT-inclusive premiums should lead the way
and eliminate this form of double taxation. A more
ambitious reform would remodel the patchwork
of transaction taxes for insurance services to a
comprehensive and broad-based, value-added
system, bringing down the insurance industry’s
15
Commentary 522
high transaction tax burden and ensuring greater
comparability with other industries.
e tax system has evolved considerably since
IPTs were rst introduced in the early 1900s.
Now is the time to bring the obsolete taxation of
insurance premiums into the 21st century.
16
Table A1: European Indirect Taxation on Insurance Contracts
Country Tax Basis
Person Liable to Tax
Informing the Policyholder Premium Tax Parascal Tax
Established in
Country
Not Established
Austria Total amount of premium paid.
Insurer, if he nominated an agent. Policyholder, if
insurer has not nominated an agent.
Taxes not shown separately from
the premium.
Yes Fire insurance
Belgium
Total amount of premium plus
commission and collection charges.
Base for parascal taxes does not include
premium taxes.
Insurer
Policyholder in absence
of intermediary residing
in Belgium.
Taxes shown separately in motor
vehicle insurance – no provision
for other classes.
Accidents at
work are exempt.
All but life
insurance
Bulgaria Total amount of premium paid.
Insurer and tax representatives of insurers
working under the freedom-to-provide services.
Mandatory to specify tax
separately from the insurance
premium.
Life and rent
insurance
exempt. All else
is 2%.
No
Croatia Total amount of premium paid. Insurer
Shown separately from the
premium.
Only motor
insurance.
All
Cyprus
a
Total amount of gross premiums for life
insurance.
Insurer Not shown on insurance policy.
Life insurance
only.
No
Czech Republic Yearly premium income. Insurer Parascal tax not shown separately. No premium tax. Motor liability
Denmark
Does not include broker’s or agent’s
commission.
Parascal tax base does not include
premium tax.
Insurer liable, but the
insured jointly and
severally responsible
for payment.
Tax representative
Shown separately from the
premium.
1.1% premium
tax on all
contracts except
life insurance and
work-accident
insurance.
Fire insurance
Finland
Includes broker’s and agent’s commission
unless broker’s commission billed
separately.
Insurer Policyholder Premiums inclusive of premium tax.
Life, accident
and health are
exempt.
Fire insurance
France Stipulated sums beneting the insurer.
Insurer, but the insurer, intermediary or
policyholder jointly and severally liable for
payment of tax when appropriate.
No provisions on indicating
parascal tax separately.
Life exempt. Motor insurance
Germany
Total amount of the premium plus
advances, additional payments, etc.
Policyholder
(declared and remitted by the insurer or
paying-in agent)
Obligation to show the tax rate,
tax amount and tax number on the
invoice.
Life and health
are exempt.
Fire, residential-
building and
home-contents
insurance.
Greece Premiums and policy duties.
Insurer. If non-payment,
no one else is liable.
No provisions for non-
established insurers.
Insured knows amount of tax.
Life >10 years is
exempt.
Life and motor
insurance.
Note:
a Cyprus also charges stamp duty on all new policies.
Appendix A
17
Commentary 522
Hungary Insurance premiums
Premium tax paid by insurance companies.
Accident (motor tax) paid by policyholder.
No information provided to
insured about tax.
Life and health
are exempt
Motor liability
Iceland
b
No premium tax. Only parascal, broker’s
and agent’s commission included.
Insurer
Taxes indicated separately from
the amount of the premium.
No Fire insurance
Ireland
c
On assessable amount of premium
income.
d
Insurer Tax deductions notied separately.
Additional 2%
tax over premium
tax on non-life.
None
Italy
Premium, w/out deductions, and all
additional amounts paid to insurer.
Insurer Insured
Must be indicated separately from
taxable premium.
Life is exempt
after January
2001.
None for
life, health
and personal
accident.
Liechtenstein Stamp duty calculated on net premium.
Insurer -if failure of
payment, no other
person is jointly and
severally responsible for
the payment.
If insurer not subject to
Liechtenstein or Swiss
control, the insured
pays.
If insurance purchased
from representative
under Liechtenstein
or Swiss control,
representative pays.
Tax not shown separately from
premium in liability and multi-risk
motor insurance. It is separate for
other insurances.
None – only
stamp duty on
specic classes of
life insurance.
None
Luxembourg
Tax basis includes costs and commissions.
For parascal tax, basis does not include
premium tax.
Insurer
If insurer not available,
the tax representative
and the policyholder
are liable. For re
insurance, only the tax
representative is.
e
Insurer liable for
re-brigade tax;
policyholder liable for
premium tax.
Tax is shown specically on
written proposals and renewal
notices.
Life, pension,
disability,
capitalization
and motor third-
party liability
(MPTL) are
exempt.
Fire and MPTL
Table A1: Continued
Country Tax Basis
Person Liable to Tax
Informing the Policyholder Premium Tax Parascal Tax
Established in
Country
Not Established
Notes:
b In 2014, Iceland abolished all previously applicable stamp duties on insurance policies.
c Ireland has a stamp duty per new contract on non-life insurance contracts..
d Assessable amount is the gross amount of premiums received in respect of business in Ireland, excluding pensions business.
e Some insurers are required to designate a tax representative in their territory to supervise the collection of the taxes and the method of recovery.
18
Malta
Long-term life policies not renewed
annually: 0.1% on sum insured. Life
policies renewed annually: 10% on
annual premium.
Non-life policies: 11% on the annual
premium.
Insurer’s liability of
document duty on
behalf of policyholder.
Same taxation regime
applies only for policies
covering risk within
Malta.
Insured is informed of document
duty by note on the receipt.
None, Malta
levies a stamp
duty rate instead,
from which
health insurance
is exempt.
None
e
Netherlands
Total premium amount charged to
insured, including the remuneration for
services associated with insurance.
Underwriting agent/
intermediary involved
in contract. If neither
involved, then insurer.
If none of them pays,
then tax is levied from
the policyholder.
e insurer’s legal
representative,
underwriting agent or
intermediary involved in
concluding the contract.
If none involved, the
insurer is liable, or
he can assign a tax
representative to be
liable.
Tax can be shown separately from
the premium, but it is not legally
required.
Life, vehicle
registered in
another EU
country, health
and individual
accident are
exempt.
None
Poland
Poland does not charge IPT. ere is only general income taxation (19%) for legal persons, which include insurance companies and intermediaries – mutual insurance
companies excluded.
Portugal
Stamp duty: gross premium.
Parascal taxes: diers based on specic
tax.
At the insured expense:
stamp duty, FAT,
ANPC, INEM and
FGA.
f
At the insurer expense:
ASF and FAT.
g
Tax representative
Tax indicated separately from
premium.
No IPT, only
stamp duty and
parascal taxes.
Yes
Romania Total cashed premiums. Insurer No provisions reported. Yes None
Slovakia
Premium received previous year – valid
for new contracts signed after 2016.
Insurer
Taxes not shown separately from
the premium. Contracts don’t
include any information.
On non-life
insurance (except
MTPL).
MTPL
Slovenia Total premium to be paid by the insured. Insurer
Premium tax is shown separately
from the premium.
Co-payment
health and
compulsory
social insurance
are exempt.
h
Fire insurance
Table A1: Continued
Country Tax Basis
Person Liable to Tax
Informing the Policyholder Premium Tax Parascal Tax
Established in
Country
Not Established
Note:
f FAT: Workers’ compensation fund. ANPC: National authority for civil protection. INEM: National institute of medical emergency. FGA: Motor guarantee fund.
g ASF: Portuguese insurance supervisory authority.
h Premium tax is on contracts that are of a maximum duration of fewer than 10 years. If more than 10 years, they are tax free.
19
Commentary 522
Spain Total premium to be paid by the insured. Insurer
Premium tax is shown separately
from the premium.
Life, group
pensions, health,
compulsory
social insurance
are exempt.
None on life,
group pensions,
compulsory
social insurance.
Sweden
Group life: 95% of total premium by
employer to insurer.
Motor: premium.
insurer
Group life: employer.
Motor: insurer/tax
representative.
Group life: must inform
policyholder of related principal
tax features.
Motor: no obligations to inform.
Only on group
life and motor
insurance.
None
Switzerland Stamp duty base is premium. Insurer only
If insurer not subject
to Swiss control, the
insured.
Otherwise, tax
representative.
If policyholder charged with stamp
duty, premium bill must bear the
remark “stamp duty included.”
None – only
stamp duty.
i
None
United
kingdom
j
Includes the risk insured, administration
costs charged to policyholders, broker’s
and agent’s commissions and any charge
for credit.
Insurer/taxable
intermediary
Insurer (or taxable
intermediary) and
tax representative
(who the insurer may,
but not required to,
appoint) jointly and
severally responsible for
payment.
Premiums are inclusive of premium
tax – no obligation to identify
amount separately to policyholder.
Life and
pensions, marine,
aviation and
transport (MAT)
are exempt.
Exempt
Table A1: Continued
Country Tax Basis
Person Liable to Tax
Informing the Policyholder Premium Tax Parascal Tax
Established in
Country
Not Established
Notes:
i Stamp duty only on specic classes of life insurance. If the policyholder is located outside of Switzerland, then the policy is exempt from stamp duty.
j e standard rate of insurance premium tax in the UK increased to 12% in eect from 1 June 2017.
Source: Insurance Europe, Indirect Taxation on Insurance Contracts in Europe, May 2017.
20
Appendix B: Estimating the impact of IPT on sales of new
individual life insurance contracts
In our analysis, we test the hypothesis that higher IPT rates lead to lower sales of individual life insurance
contracts.
Our database consists of annual provincial individual life insurance sales and provincial insurance
premium tax (IPT) rates from 1994 to 2016 for all 10 provinces. We also use additional data to control
for other determinants such as income levels, provincial ination, mortality, real interest rates, population
aging and number of dependents. In total, we have 220 observations.
12
Table B1 shows the results of estimating the following Fixed-Eects OLS model:
IndLifeSoldPC_it
=α+β
1
* IPT
it
+β
2
* LIncPC
it
+β
3
*Ination
it
+β
4
* rrb
t
+β
5
*mortality
it
+β
6
*depratio15
it
+β
7
*depratio65
it
+μ
i
+θ
t
+u
it
where IndLifeSoldPC is the number of individual life insurance contracts sold per capita in province i
at time t; IPT is the insurance premium tax rate; IncPC is real household disposable income per capita;
Ination is the ination rate; rrb is the federal real return bond rate; mortality is the mortality rate for
those older than 30; depratio15 is the young dependency ratio for those under 15; depratio65 is the
old dependency ratio for those above 65; μ is province xed eects; θ is year xed eects and u is an
error term.
ese determinants are widely used in studies such as Yaari (1965) and Hakansson (1969) who were rst
to develop a model to explain demand for life insurance, as well as Fortune (1973), Lewis (1989), Browne
and Kim (1993), Outreville (1996), Hwang and Gao (2003), Beck and Webb (2003), Li et al (2007)
and Mapharing, Otuteye and Radikoko (2016). In cross-country studies, other variables are sometimes
included, such as education, civil rights, religion and corruption.
Our results are consistent with our expectations based on previous studies, with the addition of the
IPT rates. e explanation for our positive coecient on income should be straightforward (Table B1). It
is consistent with the literature – higher income increases aordability of life insurance and the need to
absorb surplus wealth (Campbell 1980, Lewis 1989, Beenstock et al 1986, Truett and Truett 1990, Browne
and Kim 1993, Outreville1996, Beck and Webb 2003).
e negative coecient on ination is also widely agreed upon, as it dampens the demand for life
insurance products (Lenten and Rulli 2006, Li et al 2007, Beck and Webb 2003, Outreville 1996,
Mapharing, Otuteye and Radikoko 2016). While the literature shows that the eect of interest rates has
been more ambiguous, our positive coecient corresponds with the general view that higher rates decrease
the cost of new insurance policies and increase their consumption (Beck and Webb 2003).
12 One outlier data point was dropped due to its very large departure from the mean, as is standard statistical practice. Still, its
inclusion would not result in any signicant change to our results.
21
Commentary 522
Previous studies have shown that mortality has
been mostly found to be positively correlated with
demand for insurance, as it is in our results. A higher
mortality rate and lower life expectancy, which are
used as proxies for probabilities of death, increase the
perceived need for mortality coverage (Lewis 1989,
Levy et al 1988, Beck and Webb 2003, Lim and
Haberman 2004, Mapharing et al 2016).
As for the dependency ratios, the relationships
are not as clear. Some studies show that the
demand for life insurance increases with the
number of dependents (Lewis 1989, Campbell
1980, Li et al 2007). However, other studies support
our negative coecients. When we consider the
young dependency ratio, a higher number indicates
a younger population, which needs less salary
protection against early death and often cannot
aord insurance products (Beck and Webb 2003,
Kjosevski 2012). As for the old dependency ratio,
the older you are, the higher the price, leading to
lower demand.
e data for this analysis consists of the
Canadian Life and Health Insurance Association’s
annual panel data from 1994 to 2016. Most of our
control variables are signicant at the 95 percent
condence level or higher, including our main
variable of interest, the IPT rate.
As it stands, the model indicates that a one-percentage-point increase in the IPT rate leads to a
decrease in the number of insurance contracts sold of 0.00212 per capita. Nationally,
13
this would imply a
76,797 reduction in 2016 sales of individual life insurance contracts, representing more than 10 percent of
total individual life insurance contracts sold that year.
Due to low variation in some of our variables, mainly and most importantly in the IPT rates across
provinces and over the time horizon of our data, along with other data limitations, we believe that
including too many controls (including province- and year-xed eects) reduces the impact of our main
explanatory variable.
Over the time horizon of our data (1994-2016), some provinces never changed their tax rate (BC and
New Brunswick, for example). In other cases, some provinces only raised it once, such as Alberta.
Table B1: Individual Life Insurance per Capita
Standard errors in brackets
* p < 0.10, ** p < 0.05, *** p < 0.01
Note: Constant, province xed eect, and year xed eect
coecients not reported here.
Source: Authors’ calculations. Source les available upon request.
Fixed Eects Panel
Regression
P-Values
Insurance Premium Tax -0.00212** [0.041]
Income Per Capita 0.00965 [0.230]
Ination -0.000387 [0.103]
Real Bond Rate 0.00916** [0.011]
Rate of Mortality >30 0.00317*** [0.003]
Dependency Ratio <15 -0.132** [0.011]
Dependency Ratio >65 -0.126*** [0.002]
Observations 219
Adjusted R2 0.749
13 Excluding the territories.
22
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