IBC’s thoughts on tax provisions in provincial budget

Quebec will increase the tax rate on insurance premiums to harmonize it with the provincial sales tax, a move opposed by the local Insurance Bureau of Canada (IBC) chapter.

In its 2025-2026 budget released last week, the Quebec government provides for an increase in the tax rate on insurance premiums from 9% to 9.975%, effective Jan. 1, 2027, to harmonize it with the Quebec Sales Tax (QST) rate.

“For example, for a household whose annual expenditures on taxable insurance premiums are $4,000, the impact of the tax rate change will be $39,” the budget says. In particular, taxable premiums include auto and home insurance.

Pierre Babinsky, director of communications and public affairs with IBC’s Quebec branch (Bureau d’assurance du Canada), says IBC has noted the budget measures announced by Quebec’s finance minister and has advocated for a reduction in the insurance sales tax.

“In its pre-budget brief, IBC had asked the Quebec government to lower the sales tax on insurance that consumers and businesses must pay, as Quebec was already the province where insurance premiums are taxed the most in Canada,” Babinsky tells Canadian Underwriter. “IBC wanted such an incentive to encourage consumers to continue to protect their homes, cars, and other belongings, in a context where insurance is an essential expense for Quebec households.”

Insurance already “heavily taxed”

IBC’s brief notes insurance products in Quebec are heavily taxed. All property and casualty insurance products have a 3.3% premium tax in addition to the 9% sales tax that is imposed on all insurance products and premium taxes, according to a translation of IBC’s French-language pre-budget brief.

IBC will consult its members to assess the impact of the budget measure before deciding on the next steps, Babinsky tells CU. It’s also too early to say what impact this change will have on the insurance market in Quebec, he adds.

The budget says the harmonization of insurance sales tax and QST will generate additional revenues of $996.2 million over four years, including $316.1 million in 2029-2030.

“The analysis of the tax on insurance premiums showed no reason justifying why the rate should be lower than that of the QST,” the budget says. “Furthermore, when the tax was introduced in 1985, the rate applicable to insurance premiums was identical to that of the sales tax in force at the time.

“In addition, in other provinces where a tax on insurance premiums is in effect, the rate applicable on these premiums is identical to the provincial portion of the sales tax applicable to goods and services,” the budget says. For example, in Newfoundland and Labrador, the tax rate on certain insurance premiums is 15% — equivalent to the harmonized sales tax, including the federal portion.

IBC says in its pre-budget brief that it’s important to maintain a “fiscal balance” in P&C insurance “to allow policyholders to continue to be able to obtain insurance at a reasonable cost, to promote competition, and to ensure an insurance industry that remains a driving force for the economy.” Avoiding an increase in premium taxes and reducing the sales tax on insurance products would be a “relief for consumers [that] could promote better access to insurance at a time when every dollar counts for policyholders.”

In 2023, IBC reports P&C insurers paid $3.1 billion in taxes to the Quebec government, a 51.6% increase in five years.