Insurance broker cross-border tax: US commissions and the 10% excise trap

US carrier and MGA commissions: taxable here, protected there

Commission from a US MGA or carrier for business you place from Ontario is Canadian business income, converted to CAD at the rate on each payment date. On the US side there is normally nothing to file: you are performing services in Canada with no US permanent establishment, so the income isn't effectively connected to a US trade or business, and the treaty backs that up. The paperwork that makes it frictionless is a W-8BEN-E for your brokerage corporation — without one on file, US payers default to withholding, and recovering it later is slower than preventing it.

Contingent and profit commissions from US programs add an accrual wrinkle: they relate to a treaty year but arrive months later, in USD, and we book them so income lands in the right period at the right exchange rate rather than whenever the wire shows up.

The treaty position holds only while the facts do. A producer living in the US, a leased desk in a Buffalo office, or an employee soliciting US business can each start a permanent establishment argument, and once that's live the answer shifts from nothing-to-file toward a US return — sometimes a protective one filed to preserve deductions while the position is defended. We review the footprint before a US relationship scales, not after the IRS asks.

The 10% excise tax on premiums placed outside the licensed market

Part I of Canada's Excise Tax Act imposes a 10% tax on net premiums when insurance against a risk in Canada is placed with an insurer not authorized to do business here — or with an authorized insurer, but through a broker or agent outside Canada. The tax falls on the insured, who must self-report on Form B243, and life, marine, and personal accident and sickness coverage are excluded. Hard-to-place commercial risks that end up in US surplus-lines markets are the classic trigger, and the client's real cost of that placement is the premium plus 10% plus any provincial layer — Ontario adds its own taxes on unlicensed placements.

Brokers aren't the taxpayer, but they are the ones who knew where the risk was placed. Flagging B243 exposure in the placement file is cheap; a client discovering the assessment two years later, with interest, is how E&O conversations start. When a client's program genuinely needs an unlicensed market, we quantify the all-in tax cost before they bind.

Clients and books that cross the border

A personal-lines client moving to Arizona can't stay on your Ontario book — US property and auto need US-licensed placement, so the practical play is a referral relationship with a US brokerage. Referral fees flowing back to you are Canadian business income; fees you pay a US broker for Canadian-bound referrals are deductible and, as payments for services performed outside Canada, generally carry no Canadian withholding. Commercial clients with operations on both sides usually end up with parallel policies, and the premium allocation between Canadian and US risks is worth documenting — it drives both the excise analysis and each company's deduction.

USD money through a trust-bound brokerage

RIBO's trust rules don't pause at the border: premiums you collect belong in trust regardless of currency, so a book with US carrier relationships usually needs a USD trust account beside the CAD one, reconciled monthly with FX handled at recorded rates rather than whatever the bank applied. Two tax mechanics follow the money:

• Commissions are HST-exempt. Arranging for insurance is an exempt financial service — you charge no HST on commission income, and correspondingly claim no input tax credits on most overhead.
• FX differences are income, not noise. The gap between the rate when commission is earned and when USD is converted is a real gain or loss CRA expects to see.

The month-to-month trust and FX discipline lives with our insurance broker bookkeeping team; the annual filings and any cross-border cleanup live with insurance broker tax services.

Source: CRA — Insurance premiums other than marine (ETSL36R).