On July 30th, 2025, the CRA released in a news document clarification on the classification of warranties for GST/HST purposes, emphasizing that while the Excise Tax Act (ETA) does not explicitly define a warranty, it does reference warranties concerning the quality, fitness, or performance of a tangible personal property (TPP).
To determine the application of
GST/HST to a supply of a warranty of TPP, it is essential first to establish
whether the supply is a single supply or multiple supplies. If, at the point of
purchase, the seller provides the TPP, along with their own warranty to the
buyer, they are typically making a single supply of TPP.
However, there may be scenarios where the supplier provides their TPP without offering their own warranty but instead acts on behalf of another party who is providing a warranty concerning the quality, fitness, or performance of the TPP. Under this scenario, the supply of the warranty is likely considered a separate supply from the supply of the TPP. The question of whether a person must apply GST/HST to a distinct supply of a warranty primarily hinges on the person's status as a registrant or an insurer, and whether the warranty qualifies as an insurance policy as defined in the ETA.
1. Supply of a warranty by an insurer
In instances where an insurer
provides a distinct policy or contract of insurance that serves as a warranty
regarding the quality, fitness, or performance of a TPP to a person acquiring
the TPP for resale, such warranty remains included within the definition of an
insurance policy. The issuance of the insurance policy by the insurer
constitutes a supply of a financial service as outlined in paragraph (d)
of the definition of financial service in subsection 123(1).
Furthermore, the insurer's supply of a financial service is classified as an
exempt supply according to section 1 of Part VII of Schedule V
to the ETA, unless it qualifies as a zero-rated supply under Part IX of Schedule
VI to the ETA. Consequently, the insurer is not obligated to impose GST/HST
on the consideration (such as a premium) for an exempt or zero-rated supply of
a financial service.
Conversely, if an insurer provides a distinct policy or contract of insurance that acts as a warranty concerning the quality, fitness, or performance of TPP to a person acquiring the property for purposes other than resale (for instance, for personal use), the warranty is excluded from the definition of an insurance policy. Therefore, the issuance of the warranty by the insurer does not qualify as a supply of a financial service under paragraph (d) of the definition of financial service. Since the insurer's provision of the warranty does not constitute a supply of a financial service or any other exempt supply, it is categorized as a taxable supply. If the insurer is a registrant, they are typically required to charge GST/HST on the consideration for the taxable supply of the warranty.
2. Supply of a warranty by a person who is not an insurer
In instances where a person, who is not classified as an insurer, provides a distinct warranty concerning the quality, suitability, or performance of TPP to another person, such a warranty does not fulfill the criteria of an insurance policy, regardless of whether the recipient acquires the property for the purpose of resale. Since the provision of the warranty does not constitute a financial service or any other type of exempt supply, it is typically regarded as a taxable supply. If the person is a registrant, they are generally obligated to impose the GST/HST on the consideration associated with the taxable supply of the warranty.
3. Other scenarios
It becomes a matter of facts for
the CRA to ascertain whether the policy or contract qualifies as an insurance
policy as defined in paragraph (a) of subsection 123(1) in
instances where a policy or contract issued by an insurer encompasses a mix of
coverages, including insurance coverages and warranties related to TPP acquired
by a person not intended for resale. There are also scenarios where certain
products or contracts may be labeled as warranties, yet they are not warranties
for GST/HST purposes. The applicability of the GST/HST to such products or
contracts is also a matter of fact.
GST/HST Memorandum 17-16 “GST/HST
Treatment of Insurance Claims”, which addresses the GST/HST Treatment of
Insurance Claims and provides additional details regarding the definition of an
insurance policy as per subsection 123(1).
GST/HST Policy Statement
P-077R2 “Single
and Multiple Supplies” provides more information on single and multiple
supplies.
CRA publication “Excise
and GST/HST News – No. 120” highlights the recent development in the
administration of the GST/HST in determining whether a particular product is a
warranty for GST/HST purposes and the application of the GST/HST to the supply
of such a warranty.