Explanation of terms:
- Foreign resident insurer tax - the tax that arises when insurance premiums are paid or credited to foreign resident insurers.
- Assessable insurance premiums - insurance premiums that are assessable under Division 15 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).
- You - an Australian insurance broker or similar person who pays or credits an insured person's assessable insurance premiums to foreign resident insurers.
Insurance premiums you pay to a foreign resident insurer under an insurance contract (other than a contract of life assurance) are assessable in Australia in either of the following circumstances:
- Regardless of whether the insured is a resident or foreign resident:
- the insured property is situated in Australia at the time the insurance contract is made
- the insured event is one that can happen only in Australia.
- The insured Australian resident enters into an insurance contract with a foreign resident insurer and an agent or representative in Australia of that insurer was instrumental in inducing the entry of the insured person into that contract. In this case it does not matter where the property is situated or where the event may occur.
Premiums paid to a foreign resident insurer under insurance contracts entered into by a principal office or branch that is established in Australia are not assessable under Division 15. However, they may be subject to other provisions of the income tax law.
How is the foreign resident insurer tax calculated?
When you pay assessable insurance premiums to a foreign resident insurer, that foreign resident insurer is deemed to have derived taxable income equal to 10% of the total amount of the premiums you have paid or credited to them. This is called the '10% method'.
However, if we can work out the actual profit or loss the foreign resident insurer made from the premiums you pay or credit, we calculate the taxable income or loss on those premiums from the actual receipts and expenditure. This is called the 'actual profit or loss method'.
We will calculate the foreign resident insurer tax using the company tax rate, which is currently 30%.
Example
You pay an assessable insurance premium of $1,000 to a foreign resident insurance company. To work out the foreign resident insurer tax on that payment using the 10% method, you need to apply the company tax rate of 30% to 10% of the assessable insurance premiums paid - that is, $1000 X 10% X 30% = $30.
When you pay assessable insurance premiums to a foreign resident insurer, we consider you to be the 'deemed agent' of the foreign resident insurer.
If the foreign resident insurer tax is calculated using the 10% method, the amount you must keep will generally be 3% of the assessable insurance premiums you paid under the current company tax rate.
If the foreign resident insurer tax is calculated using the actual profit or loss method, the amount you must keep will generally be calculated from the actual profit or loss the foreign resident insurer makes on the premiums you pay or credit.
You must lodge an aggregate income tax return showing your entire position as an agent for a foreign resident insurer. This return is called an 'AAF return' and is separate to your own income tax return.
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For help with completing these forms, refer to:
We have prepared these guides to help you complete the TFN application and the income tax return for Division 15 purposes only.
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As a deemed agent, you must lodge your AAF return with us by the first day of the sixth month of the following year of income, unless we advise it must be lodged by a different date.
As a deemed agent, generally you do not have to pay the tax due until 21 days after the date specified on the notice of assessment, provided you lodged your AAF return on time.
If you lodge your AAF return late, you must pay the tax due within 21 days after the due date for lodgement.
As a deemed agent, if you have a SAP and you want to lodge the AAF return on the same basis, you need to make a separate request to us.
Foreign resident insurer tax is different to withholding tax. You do not have pay as you go (PAYG) obligations in relation to your foreign resident insurer tax. Also, you do not need to obtain an Australian business number (ABN) and you do not need to complete a business activity statement.
Example
On 1 February 2011, you pay a client's assessable insurance premium of $500 to foreign resident insurance company A. On 1 March 2011, you pay another client's assessable insurance premium of $500 to foreign resident insurance company B. As a result of paying these premiums (totalling $1,000), you are the deemed agent of the foreign resident insurers, and have a number of obligations under tax law.
If the foreign resident insurer tax is calculated under the 10% method, you must keep $30 - that is, 10% of the $1,000 assessable insurance premiums, multiplied by the company tax rate of 30%. You must also have an AAF return TFN.
On 1 December 2011, you lodge an AAF return for the 2010-11 income tax year with us. This return sets out your entire position as a deemed agent; that is, the return incorporates the total $1,000 premiums you paid to foreign resident insurance companies A and B. On 15 December 2011, we issue an assessment notice setting out your liability for $30. The amount must be paid to us by 5 January 2012 - that is, 21 days after issue of the notice of assessment.
For more information:
- phone us on 13 28 66
- write to us at
Last Modified: Monday, 26 November 2012