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  • Subdivision 153-B arrangements

    Subdivision 153-B simplifies the way you can account for GST by allowing entities to enter into an arrangement under which an agent is treated as a separate supplier or acquirer. The general effect of entering into these arrangements in respect of both supplies and acquisitions is that the principal and agent are treated as acting as between a principal and another principal.

    These arrangements do not impact on other taxation laws except where specifically noted. Nor do the arrangements impact upon other laws or contractual arrangements between the parties. The option exists for GST purposes only and allows an alternative way for agents and principals to account for GST.

    From 1 July 2010, the range of entities that can access these arrangements has been extended to include intermediaries that facilitate transactions but are not common law agents. The changes apply to supplies and acquisitions made by intermediaries on or after 1 July 2010.

    The following would be the effect of a Subdivision 153-B, if the lead insurer and the three other co-insurers have a Subdivision 153-B arrangement for transactions in relation to supplying insurance and processing claims, and under the co-insurance arrangement, the lead insurer is agent for the 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 agreement, the lead insurer would be treated as making the supplies of insurance to the third parties and the acquisitions from the third parties entirely in its own right for GST purposes only. The principals would be treated as making corresponding supplies to the lead insurer and corresponding acquisitions from the lead insurer.

    For GST purposes, the lead insurer would be treated as having made the acquisitions for the co-insurers – such as building services, replacement equipment, and general claims costs – in its own right and would claim the full input tax credit for those acquisitions. The lead insurer would also be treated as supplying those things acquired to each of the co-insurers to the extent of their share of the co-insurance arrangement. For GST purposes, each co-insurer would be treated as having made an acquisition of that supply from the lead insurer.

    If the lead insurer makes a payment in settlement of the claim, the lead insurer would claim the appropriate decreasing adjustment (if any). This is because the lead insurer is treated as having made the supply of insurance in its own right for GST purposes.

    The other three co-insurers are entitled to an input tax credit for the corresponding acquisitions from the lead insurer and a decreasing adjustment (if any) for the corresponding payment in settlement of the claim if they reimburse the lead insurer for the payment. However, generally it is expected that the other co-insurers will have no decreasing adjustment as the lead insurer is the entity that is treated as having acquired the insurance from the other co-insurers. It is generally expected that the lead insurer would have had a full input tax credit on the payment they are treated as having made to the co-insurers for that supply.

    Subsections 153-55(3) and 153-60(3) provide that the payment of commission or similar payment to the agent (the lead insurer) for the agent's supply to the third party or acquisition from a third party is not a taxable supply.

    Example: Subdivision 153-B agreement

    Under a co-insurance arrangement, Rob's Cover 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 Rob's Cover) supply an insurance policy to Dutton Loans, a supplier of housing loans to members of Kleen Services. The insurance premium is $11,000. Dutton Loans 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 the co-insurers have a Subdivision 153-B agreement in place, the co-insurers are treated as making a supply of insurance to Rob's Cover equal to their share of the supply to Dutton Loans, and Rob's Cover as making a supply of that insurance to Dutton Loans. Rob's Cover still supplies its share of the insurance to Dutton Loans.

    Rob's Cover will account for the entire supply of insurance to Dutton Loans, that is, $11,000, including GST of $1,000. Each of the other co-insurers will account for a taxable supply to Rob's Cover of one-quarter of the supply to Dutton Loans, that is, $2,750, including GST of $250. Rob's Cover will account for input tax credits on each of the supplies from the other co-insurers, that is, three acquisitions of $2,750, with input tax credits of $250 each.

    Dutton Loans later makes a claim under the policy.

    Rob's Cover settles the claim by making an acquisition of services for $495 and a cash settlement of $1,925. Rob's Cover will claim an input tax credit of $45 and a decreasing adjustment of $175.

    Presuming the other co-insurers reimburse Rob's Cover for the acquisition, Rob's Cover will be treated as making supplies of those services to each of the co-insurers to the extent of their share of the co-insurance arrangement, that is, three supplies for $123.75 each, including GST of $11.25 each. Each co-insurer would account for these supplies as acquisitions, that is, one acquisition each for $123.75, with an input tax credit of $11.25.

    Presuming the other co-insurers reimburse Rob's Cover for the cash settlement and Rob's Cover has claimed for this reimbursement, each co-insurer would be treated as making a payment in settlement of the claim by Rob's Cover under the insurance policy that each co-insurer has been treated as having made to Rob's Cover. None of the other co-insurers would be entitled to a decreasing adjustment on these settlements as Rob's Cover was entitled to a full input tax credit on the acquisition of the insurance it is treated as having made from the other co-insurers.

    End of example

    See also:

    • GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (paragraphs 74 to 91L)
      Last modified: 29 Nov 2017QC 16400