04 · The tax trap
Can a global policy cover Canada? Generally, but it’s taxed.
The part of a Canadian expansion most global programs miss.
Short answer
Covering Canadian risks under a foreign master policy is generally legal (some provinces, e.g. Nova Scotia, restrict it), but it triggers taxes the Canadian entity must self-report, starting with a 10% federal excise tax on net premium.
of net premium, all jurisdictions. Federal excise tax (Excise Tax Act, Part I).
Who it catches
Any business operating in Canada counts as resident for the federal tax, including foreign-incorporated companies. A parent including its Canadian subsidiary in a global policy can trigger it.
Exclusions and exemptions
Marine, life, accident and sickness are outside the federal tax. If cover is genuinely unavailable in Canada, you can apply for exemption on Form E638 with declinations from five authorized Canadian insurers. Provincial tax can still apply; BC charges it even when no licensed insurer offered the cover.
Rules differ by jurisdiction
Nova Scotia prohibits direct placement with unlicensed insurers, and penalties elsewhere can be steep (up to 200% in Quebec). Confirm rates and filing rules in each province and territory with your broker or tax adviser.
| Tax | Rate | Applies when | Who files |
|---|---|---|---|
| Federal excise tax (Excise Tax Act, Part I) | 10% of net premium, all jurisdictions | Canadian risk insured with an unlicensed insurer, or a licensed insurer through a broker outside Canada | The insured, on Form B243 (due April 30 for the prior calendar year) |
| Provincial/territorial premium tax on unlicensed insurance | Varies; e.g. BC 7%, Ontario 3.5% property / 3% other | Local property or residents insured with an insurer not licensed in that jurisdiction | The insured, or a local broker if one places it |
Best practice
Avoid the trap.
A locally admitted Canadian policy, issued by your global insurer’s Canadian branch or partner and placed through a Canadian broker, with the master policy providing difference-in-conditions/limits cover.
Questions, answered
Is it legal to insure Canadian risks under a foreign master policy?
Covering Canadian risks under a foreign master policy is generally legal, though some provinces (e.g. Nova Scotia) restrict it, and it triggers taxes the Canadian entity must self-report.
What is the 10% federal excise tax on insurance?
Under the Excise Tax Act, Part I, it is 10% of net premium in all jurisdictions. It applies when a Canadian risk is insured with an unlicensed insurer, or with a licensed insurer through a broker outside Canada. The insured files it on Form B243.
Is any insurance exempt from the federal excise tax?
Marine, life, accident and sickness are outside the federal tax. If cover is genuinely unavailable in Canada, you can apply for exemption on Form E638 with declinations from five authorized Canadian insurers.
Does a foreign company count as resident for the federal tax?
Yes. Any business operating in Canada counts as resident for the federal tax, including foreign-incorporated companies. A parent including its Canadian subsidiary in a global policy can trigger it.