If the lead insurer is acting as agent for the other co-insurers – such that the lead insurer makes creditable acquisitions under Division 11 on behalf of the principals, and also makes Division 78 settlements for which the principals may be entitled to a decreasing adjustment – the following will apply.
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Input tax credits
The other co-insurers are entitled to an input tax credit for acquisitions made through an agent. In accordance with section 153-5, they can attribute that input tax credit to the first tax period in which they or their agent (the lead insurer) holds a tax invoice. However, Division 11 limits the amount of input tax credit each of the co-insurers is entitled to claim. Section 11-25 states that the amount of input tax credit for a creditable acquisition is an amount equal to the GST payable. However, under section 11-30, the amount of input tax credit is reduced if the acquisition is only partly creditable.
Section 11-30 states that an acquisition is only partly creditable if you provide, or are liable to provide, only part of the consideration for the acquisition. Consequently, each co-insurer is entitled to claim an input tax credit in accordance with the percentage of consideration that they provide.
Subdivision 153-A provides that a principal must attribute input tax credits or adjustments to the first tax period when the principal holds the relevant tax invoice or adjustment note. Under Subdivision 153-A, the principal's obligations are complied with if the agent issues tax invoices and adjustment notes on behalf of the principal for those supplies made by the principal through the agent.
Where the agent incurs extra expenses – but not expenses for which it is an agent of the principal, and the principal reimburses the agent for those expenses – the principal may be entitled to claim the input tax credits for those reimbursements under Division 111. This will only be the case where the agent is not able to claim the input tax credits in their own right, such as if the agent is not registered for GST.
Decreasing adjustments
Under section 78-10, 'an insurer has a decreasing adjustment if, in settlement of a claim under an insurance policy, the insurer makes one or more of the following:
- a payment of money
- a payment of digital currency
- a supply. '.
Consequently each co-insurer, including the lead insurer, has a decreasing adjustment for the settlement that they make under the insurance policy. The lead insurer and the other co-insurers would attribute a decreasing adjustment according to the basic attribution rules set out in section 29-20 unless a special attribution rule applies. Section 29-20 states that you attribute an adjustment to the tax period in which you become aware of it. Each co-insurer would only attribute their share of the decreasing adjustment, that is, to the extent of their share in the co-insurance arrangement.
Administration fees
In some cases the lead insurer and the principals have agreed to share administration costs by way of a fee paid to the lead insurer. In this case, the lead insurer makes a taxable supply of the administration services to the other co-insurers and would need to provide a tax invoice for the agreed claims administration costs, if requested by the other co-insurers.
Example: Agency agreement
Sure Insurance acts as agent for three other co-insurers.
Under the co-insurance arrangement, Sure Insurance is agent of three other co-insurers for the purposes of:
- supplying the insurance offered by the co-insurers
- settling claims under those policies, whether by making acquisitions or importations, making acquisitions or importations directly for the purpose of settling claims, or making cash settlements.
Under the co-insurance arrangement, the four co-insurers (including Sure Insurance) supply an insurance policy to Invisible Ink, a small supplier of invisible ink whiteboard markers for Secret Service. The insurance premium is $110. Invisible Ink is not registered for GST and so is not entitled to input tax credits on this premium. Each co-insurer makes a quarter of the supply as they share the risks equally.
As Sure Insurance is agent for the other co-insurers, each co-insurer has made a supply to Invisible Ink. Each co-insurer, including Sure Insurance, will account for a supply for $27.50, including GST of $2.50.
Invisible Ink makes a claim under the policy.
In order to settle the claim, Sure Insurance acquired building services and replacement equipment in its own right (to the extent of its share in the arrangement) and as agent for the other co-insurers (to the extent of their share in the arrangement). The total acquisitions cost $17,600, including GST of $1,600. Sure Insurance and each co-insurer would be entitled to their share of the input tax credits for these acquisitions, that is, $400 each. This is because Sure Insurance is acting as agent for the three other co-insurers.
Sure Insurance also makes a payment of $2,200 to Invisible Ink in settlement of the claim. As Sure Insurance is acting as agent for the other co-insurers – and in its own right to the extent of its share in the co-insurance arrangement in making the cash settlement – each co-insurer has made a quarter of the payment. Each will have a deceasing adjustment on their share of the payment. As Invisible Ink was not entitled to input tax credits on the premium, the amount of the decreasing adjustment will be one-eleventh of their share, that is, one-eleventh of $550, which is $50.
Sure Insurance would therefore need to inform the other three co-insurers of:
- the quantum of the acquisitions it has made as their agent, including the portion of input tax credit available and whether it holds the relevant tax invoice
- the quantum of any Division 78 settlement amount and the decreasing adjustment (if any) that is available.
Under this co-insurance arrangement, the other co-insurers reimburse Sure Insurance for the administration costs. Sure Insurance would also need to provide a tax invoice for the agreed claims administration costs, if requested by the other co-insurers. This is because Sure Insurance has made a taxable supply of the administration services to the other co-insurers.
End of exampleSee also:
- GSTR 2000/37 Goods and services tax: agency relationships and the application of the law