Abstract
Intermediary services related to the provision of casualty insurance (for losses other than life or health) are fully subject to GST in Australia. Tax is levied on the value of insurance premiums paid by registered and unregistered policy-holders. Registered enterprises (other than those making input taxed (exempt) supplies), claim offsetting input tax credits for GST imposed on the premiums. Settlements paid to unregistered claimants attract a notional input tax credit to the insurer and settlements paid to registered claimants are out of scope payments with no GST consequences. The final result is that GST is paid on intermediary services provided to both unregistered and registered enterprises. The GST paid on intermediary services to registered enterprises is fully recovered by the enterprises (except to the extent the insured enterprises make input taxed (exempt) supplies) through the ordinary tax invoice and credit system. More detailed rules ensure similar outcomes are achieved where settlements are made in kind, where reinsurance arrangements are in place, and when insurers operate through agents.
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Notes
- 1.
The current and previous rules are reviewed in Chiert (2002).
- 2.
A New Tax System (Goods and Services Tax) Act 1999 (Cth.), s. 195-1.
- 3.
By implication of Australian Taxation Office GST Ruling GSTR 2002/2, GST treatment of financial supplies and related supplies and acquisitions, para. 97.
- 4.
See Australian Taxation Office Interpretative Decisions, ATO ID 2001/116 and ATO ID 2001/117.
- 5.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-10, with the formula for calculating the adjustment set out in s. 78-15. For further illustrations of the operation of the provisions, see Joseph (2004).
- 6.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-35.
- 7.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-75.
- 8.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-55.
- 9.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-18.
- 10.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-10.
- 11.
Australian Taxation Office GST Determination, GSTD 2011/1, Is an ex gratia payment by an insurer in response to a claim under an insurance policy a payment made ‘in settlement of a claim’?
- 12.
The rationale for the changes and the technical aspects of the changes are covered in some detail in Treasury Archive Note ‘GST and General Insurance’, http://archive.treasury.gov.au/documents/119/PDF/4gst.pdf.
- 13.
Former s. 78-5(1), A New Tax System (Goods and Services Tax) Act 1999.
- 14.
A New Tax System (Indirect Tax and Consequential Amendments) Act (No. 2) 1999 (Cth.), Sch. 1.
- 15.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-45.
- 16.
See generally Waller et al. (2015).
- 17.
See generally, Australian Taxation Office, GST Ruling GSTR 2006/10, Goods and services tax: insurance settlements and entitlement to input tax credits.
- 18.
See Revised Explanatory Memorandum (Senate) to the A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999, p. 55.
- 19.
Mattress Innovations Pty Ltd v Suncorp Metway Insurance Ltd [2013] QCA 377 (Queensland Court of Appeal).
- 20.
A New Tax System (Goods and Services Tax) Act 1999, s. 78-50; see also Australian Taxation Office Interpretative Decision, ATO ID 2005/234.
- 21.
Stacey (2001).
- 22.
A New Tax System (Goods and Services Tax) Act 1999, Sub-div. 153-B.
- 23.
Australian Taxation Office Interpretative Decisions, ATO ID 2001/116 and ATO ID 2001/117.
- 24.
A New Tax System (Goods and Services Tax) Act 1999, s. 195-1.
- 25.
A New Tax System (Goods and Services Tax) Act 1999, Divs. 79 and 80, introduced by Taxation Laws Amendment Act (No. 6) 2003.
- 26.
A New Tax System (Goods and Services Tax) Act 1999, Sub-div. 79-D.
- 27.
A New Tax System (Goods and Services Tax) Act 1999, s. 79-100.
- 28.
From 1 July 2015 the term ‘Australia’ was replaced with the term ‘indirect tax zone’ that is defined a little more precisely in terms of included and excluded external territories.
- 29.
Two turnover thresholds are used, a current and a projected turnover; see A New Tax System (Goods and Services Tax) Act 1999, s. 188-15 and s. 188-20.
- 30.
A New Tax System (Goods and Services Tax) Act 1999, s 9–25(5)(d). Under these rules, offshore suppliers must take reasonable steps to determine whether the recipient of a supply is an Australian resident consumer.
- 31.
A New Tax System (Goods and Services Tax) Act 1999, s. 84-5.
- 32.
A New Tax System (Goods and Services Tax) Act 1999, s. 84-10.
- 33.
Australian Taxation Office, GST Ruling GSTR 2003/8, para. 121.
- 34.
A New Tax System (Goods and Services Tax) Act 1999, s. 38-190(1), Item 4.
- 35.
Australian Taxation Office, GST Ruling GSTR 2000/33, International travel insurance, para. 31.
- 36.
A New Tax System (Goods and Services Tax) Act 1999, s. 40-5 and A New Tax System (Goods and Services Tax) Regulations 1999, Reg. 40.5.09(3), Item 6.
- 37.
A New Tax System (Goods and Services Tax) Act 1999, former s. 81-5(2).
- 38.
A New Tax System (Goods and Services Tax) Act 1999, s. 81-5(1).
- 39.
A New Tax System (Goods and Services Tax) Act 1999, s. 195-1.
- 40.
A New Tax System (Goods and Services Tax) Act 1999, s. 38-55.
- 41.
Private Health Insurance Act 2007 (Cth.).
- 42.
Private Health Insurance Act 2007, ss. 121-1(1) and 131-15(1)(b).
References
Chiert, Gary, GST: Insurance and Financial Services (Thomson, Sydney, 2nd ed., 2002)
Joseph, Anton, Insurance Transactions under Australian GST (2004) 15(3) International VAT Monitor 176
Stacey, Paul, Short-changed by your insurer (2001) 1(8) Australian GST Journal 155
Waller, Mark, Patane Michael and Davison, Danielle, Settling insurance claims — potential GST implications: Timing is everything! (2015) 26(2) Insurance Law Journal 122
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Krever, R., Teoh, J. (2017). GST and Insurance: Australia. In: van Brederode, R., Krever, R. (eds) VAT and Financial Services. Springer, Singapore. https://doi.org/10.1007/978-981-10-3465-7_17
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