‘Accidental’ GST legislation set to grab extra $1 billion from insurers

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Finance Minister Jim Flaherty, left, gives a thumbs up with Prime Minister Stephen Harper as he arrives to deliver his budget speech in the House of Commons on Parliament Hill in Ottawa on March 4, 2010. Canada\'s insurance industry faces a -billion GST bill at the end of this month, thanks to a federal tax move critics say smacks of a \'banana republic\'. The massive tax hit applies to some financial services that insurers say were never before subject to GST. THE CANADIAN PRESS/Fred Chartrand

OTTAWA – Canada’s insurance companies are facing a big GST bill at the end of this month, up to $1 billion in extra charges.

They complain they’ve suddenly been caught by a confusing and poorly conceived amendment to Canada’s tax laws — forcing them to pay the tax seven years retroactively.

The problem dates back to a court case the federal government lost in 2003 to an insurer who balked at paying GST on some financial services.

The Finance Department announced in 2005 it was closing the so-called loophole, but didn’t get around to amending the law until 2010.

Insurers and others say the revised law is as confusing as the old one and imposes an unfair burden, forcing them to pay back taxes they did not know they owed.

But a spokeswoman for Finance says the revisions simply restore the law to its original intent when the GST first came into effect in 1991.

One critic says the botched process has tax experts in other countries calling Canada a ‘banana republic.’

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