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SURETY BONDS CAUGHT IN INSURANCE TAX NET

SUPERIOR COURT CONFIRMS SURETY BONDS SUBJECT TO CORPORATE INSURANCE TAX

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Commercial surety bonds ("Surety Bonds") are a vital but frequently misunderstood staple of international trade. Importers and customs brokers rely on Surety Bonds to secure various financial obligations with the Canada Border Services Agency ("CBSA"), including Release Prior to Payment ("RPP") bonds under CARM, bonded warehouses, carrier agreements, and customs appeal bonds.

A recent Ontario Superior Court of Justice ("ONSC") decision has introduced significant tax implications for the financial institutions issuing these vital trade tools. In Aviva Insurance Company of Canada v. Minister of Finance, 2026 ONSC 2374 ("Aviva"), the Court determined that surety bonds fall within the definition of a "contract of insurance" for provincial insurance premium tax purposes.

This Customs Report examines the Aviva decision and its impact on the customs landscape.

Background to Aviva

The Appellant, Aviva Insurance, sells Surety Bonds, which are legally binding, three-party agreements in which one party (the "Surety") financially guarantees to a second party (the "Obligee") that a third party (the "Principal") will fulfill their specific contractual or legal obligations. Of course, Aviva charges Principals a fee ("Surety Fee").

The Minister of Finance ("MOF") assessed Aviva under section 74(1) of Ontario's Corporations Tax Act ("CTA"). Section 74(1)(a) imposes a 2% tax on premiums ("Premium Tax") collected in respect of three specified forms of insurance; section 74(1)(b) imposes a 3% Premium Tax on premiums collected in respect of "any other contract of insurance." The MOF argued that Surety Fees are a form of insurance premium and should therefore be subject to Premium Tax under section 74(1)(b).

Aviva challenged the assessment, arguing that a Surety Bond falls outside the common-law definition of an insurance contract and, since the CTA does not define "contract of insurance," its Surety Fees should not be subject to Premium Tax. The MOF countered that the term carries a commercial and statutory meaning that does encompass Surety Bonds. The Court decided the issue by engaging in statutory interpretation of section 74(1)(b).

The Court's Decision

The Court ruled that the Premium Tax does apply to Surety Bonds, based on a contextual analysis of section 74(1)(b) in the broader CTA.

The Court highlighted section 53 of the CTA, which directs that the taxable incomes of insurance corporations be computed in accordance with the rules for insurance corporations in the federal Income Tax Act ("ITA"). Because section 138(1) of the ITA includes Surety Bonds within its taxation of insurance businesses, the Court concluded that Ontario's Legislature intended to include them too.

Additionally, the CTA's legislative history revealed that the original 1914 statute explicitly included guarantee and surety companies. While the definition was simplified in 1968, legislative debates confirmed the amendment aimed to conform with federal frameworks, not to carve out an exemption.

Takeaways

The Aviva decision will directly increase the cost of regulatory compliance for importers and customs brokers as Sureties pass the Premium Tax down to trade participants, raising the baseline cost of essential tools like CARM RPP bonds and warehouse guarantees.

Moreover, other provinces may follow Aviva and begin taxing customs security instruments. Those in the customs community who are concerned about this potential added overhead, or other Surety Bond issues, should contact Experienced Customs Counsel.

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