Insurance with non-resident insurers

Tax obligations

You may have to fulfil certain tax obligations on behalf of non-resident insurers if you either:

• insure Australian property, or events that can happen only in Australia, with non-resident insurers
• are an insurance broker or agent who facilitates insurance for residents of Australia with non-resident insurers, where insured properties can be situated, or the insured event can occur, anywhere in the world.

Contracts of life assurance with non-resident insurers are excluded from these tax obligations.

The following information doesn't apply if you are an Australian insurer and you reinsure with non-resident reinsurers.

For more information about insurance this see:

• Reinsurance with non-resident reinsurers

Income tax requirements

If you pay insurance premiums to a non-resident insurer, the non-resident insurer may be required to pay tax on either the:

• premiums they receive from you
• profit they make from premiums received, that may be partly or wholly from you.

You, and any person in Australia acting on the insurer's behalf, may be considered an agent of the insurer. You may need to:

• apply for a tax file number (TFN), separate to your own TFN, for this specific purpose
• lodge a tax return using this separate TFN
• pay the relevant tax to us on behalf of the non-resident insurer.

For more information see:

• Division 15 of Part III of the Income Tax Assessment Act 1936.

When the premium or profit is taxable in Australia

Premiums you pay or payable to, or profits made by, a non-resident insurer under an insurance contract are taxable if either:

• you are the insured person and the insured property is situated in Australia at the time the insurance contract is made, or the insured event can happen only in Australia – this is regardless of whether you are an Australian resident or non-resident
• an agent or representative of the non-resident insurer in Australia is instrumental in you entering into the contract and you are an Australian resident – this is regardless of where the insured property is situated or where the event may occur.

Note: Where an insurance contract covers properties or events than can occur both in and outside of Australia, but there is no separate identification or allocation of premium to the specified properties situated in Australia or events that can occur in Australia within the insurance contract; such premiums won't be assessable under subsection 142(1).

For more information see:

• ATO IDs 2004/411; 412; 413 and 416.

Premiums paid to an Australian principal office or branch of a non-resident insurer aren't covered by the rules relating to insurance with non-resident insurer tax. However, the Australian principal office or branch of the non-resident insurer may be subject to Australian tax on its Australian source insurance business.

How taxable income of non-resident insurer tax is calculated

The taxable income of non-resident insurers is calculated in one of two ways.

The 10% method

Under this method, the taxable income for the year is calculated as 10% of the total amount of the premiums that were paid or payable by you in that year to non-resident insurers.

For more information see:

• What do premiums encompass?

The actual profit or loss method

Under this method, the taxable income for the year is calculated as the actual profit (or actual loss) made by the non-resident insurer in respect of all premiums that were paid in that year to the non-resident insurer.

If an agent of a non-resident insurer seeks to apply the actual profit or loss method, the agent must not only determine the actual profit or loss attributable to those taxable premiums paid on insurance contracts for which that agent has acted on behalf of the non-resident insurer, but also satisfy the Commissioner:

• that there are no other premiums that might be assessable to the non-resident insurer; or
• as to the actual profit and loss attributable to all premiums (including the other premiums) that might be assessable to the non-resident insurer.

Where an agent is unable to satisfy the Commissioner, the agent is limited to calculating the taxable income of the non-resident under the 10% method.

For more information see Establishing actual profit or loss to the satisfaction of Commissioner.

Establishing actual profit or loss to the Commissioner's satisfaction

Whether the actual profit or loss can be established to the satisfaction of the Commissioner is a matter of substantiation.

Note: It may be difficult to establish the actual profit or loss on all premiums, including when the non-resident insurer has either:

• received premiums from more than one agent in Australia
• entered insurance contracts directly with insured persons.

What do premiums encompass?

For the purposes of determining the taxable income of non-resident insurers, premium is the total amount you are required to pay the non-resident insurer for an insurance policy to have effect. However, premium excludes GST payable, as the tax law doesn't include GST payable on a taxable supply in assessable income.

The taxable premium includes expenses paid on behalf of the non-resident insurer such as:

• brokerage commissions
• state and territory stamp duties, and
• levies

But does not include:

• GST payable on that premium.

For further information see:

• ATOID 2013/59 Income Tax: Income derived by non-resident insurer
• Section 17-5 of the ITAA 1997: GST and increasing adjustments.

This is not a withholding tax

Tax relating to insurance with non-resident insurers that is remitted by you is different to withholding taxes. You don't:

• have pay as you go (PAYG) obligations
• need to obtain an Australian business number
• need to complete a business activity statement.

Substituted accounting periods

If you have a substituted accounting period (SAP) and you want to lodge the as agent for the non-resident insurer return using the same SAP, you need to make a separate SAP application.

For more information see:

• Application for a substituted accounting period

What you need to do

As an agent (either insured person or person in Australia acting on behalf of the non-resident insurer), you have the following tax obligations

Steps for an agent

Apply for a TFN

If you don't have a TFN as agent for the non-resident insurer, you need to apply for one – see TFN application for companies and other organisations. The TFN is separate to your own TFN.

Identify you are acting as agent for the non-resident insurer on the TFN application form, for example ‘ABC Company Pty Ltd as agent for non-resident insurers’. For more information see instructions at Division 15 – how to fill out the tax file number application form

Retain funds to cover the tax

When you pay insurance premiums to non-resident insurers, you must retain funds to cover the tax payable. This amount to be retained is calculated using either of the following methods:

• 10% method – applying the applicable corporate tax rate to 10% of the premiums you paid to the non-resident insurer
• actual profit or loss method – actual profit made by the non-resident insurer multiplied by the applicable corporate tax rate.

Complete the tax return

At the end of the income year, complete an 'as agent for' tax return (AAF return).

Where you use the 10% method, complete an aggregated AAF return to cover amounts paid to all non-resident insurers.

Where you can use the actual profit or loss method, disclose any taxable income calculated separately from taxable income calculated using the 10% method, that is in a separate AAF return with a different TFN.

The AAF return is separate to your own tax return.

You must use the ANZSIC industry code '99050' on the AAF return.

See Division 15 – how to fill out the company tax return.

Lodge the tax return

You must lodge your AAF return 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.

Pay the tax

Generally, you pay the tax by the due date specified in the notice of assessment.

If you lodge your AAF return late, you must pay the tax due within 21 days after the due date for lodgment.

Division 15 – how to fill out the tax file number application form

These instructions are only for the purpose of applying for a TFN as agent for non-resident insurers and cover the information to be provided for certain questions. You need to download a copy of the form (NAT 3799) from our website at online orderingExternal Link.

Section A: Applicant information

Question 1 – Type of applicant

Select Other unincorporated entity.

Question 2 – What is the entity's legal name?

Provide the name of the entity that is acting as agent.

For example: ABC Company Pty Ltd as agent for non-resident insurers.

Question 3 – Does the entity have an Australian Company Number (ACN) or an Australian Registered Body Number (ARBN)?

Select No.

Question 4 – Is the entity a subsidiary company?

Select No.

Section B: Address details

Question 5 – Where is the entity's main business location or address?

Provide the business address of the entity that is acting as agent (not the address of the non-resident insurer). In the example given for Question 2, this will be the business address of ABC Company Pty Ltd.

Question 6 – What is the entity's postal address for service of notices and correspondence?

Is the entity's postal address the same as the business address?

If you select No, provide the business address of the entity that is acting as agent where notices and correspondence should be sent (not the address of the non-resident insurer).

Section D: Business activity details

Question 10 – On what date was the entity established?

Provide the date from which premiums were paid, or became payable, to the non-resident insurer.

Question 11 – What is the main industry that the entity operates in?

Select Financial and insurance services.

Question 12 – Describe the main activity from which the entity derives the majority of its business income

Provide the description 'Acting as agent for non-resident insurer'.

Section E: Taxation details

Answer each of the following questions for the entity that is acting as agent:

• Question 13 – Is the entity a resident of Australia for tax purposes?
• Question 14 – Is the entity exempt for income tax purposes?
• Question 15 – Is the entity a non-profit organisation?

Section F: Associates of the entity

Question 17 – Who is its public officer?

Provide the details of the public officer of the entity that is acting as agent, for example: the public officer of ABC Company Pty Ltd.

Where public officer details can't be completed because the entity acting as agent is a non-resident and doesn't have an Australian resident public officer, complete Question 19. Specifically, provide details of at least one individual associated with the entity, together with 2 certified copies of proof of identity documents if that individual doesn't have a TFN.

For further information, see also:

Proof of identity – applicants outside Australia

Copies of identity documents for applicants outside Australia

Section G: Declaration

Question 21 – Who is the authorised person signing this declaration?

Complete this section as usual.

How to lodge your application

Send the TFN application to:

Australian Taxation Office
PO Box 3373
PENRITH NSW 2740

Division 15 – how to fill out the company tax return

These instructions are only for the purposes of completing a return as agent for non-resident insurers (AAF return).

Unless specific instructions are given below, the company tax return should be completed as normal.

Company information

Tax file number (TFN)

Use the TFN allocated for AAF return purposes only.

Name of company

Provide the name of the entity that is acting as agent, for example ABC Company Pty Ltd as agent for non-resident insurers.

Question 2 – Description of main business activity

Provide the description 'Acting as agent for non-resident insurer'.

Provide the industry code number '99050'.

Question 3 – Status of company

Select Resident C1.

Select Private D9 or Public D10.

Select Significant global entity G1 if the entity acting as agent was a SGE at any time during the income year.

Don't select Country by country reporting entity G2.

Question 6 – Calculation of total profit or loss

Where the 10% method has been used:

• enter at label R Other gross income, an amount equal to '10% of the total amount of the premiums paid by you to non-resident insurers'
• enter the amount you have shown at label R also at label S Total income and at label T Total profit or loss.

Where we agree you can use the actual profit or loss method, complete all the relevant income and expenses items.

Question 7 – Reconciliation to taxable income or loss

At label G Did you have a CGT event during the year? select No.

Complete label T Taxable/net income or loss, as usual. This is the amount shown at label T Total profit or loss in Question 6.

Overseas transactions or interests/thin capitalisation

At labels X and Y for the questions under the heading International related party dealings/transfer pricing, select No.

At label Z for the question under the heading Overseas interests select No.

At label O for the question under the heading Thin capitalisation select No.

Calculation statement

Complete as usual

Declarations

Complete as usual.