ATO Interpretative Decision

ATO ID 2002/28

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, an insurance provider, making a GST-free supply under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies disability insurance to parents residing on an external Territory, to cover their child whilst the child attends day care on the external Territory?

Decision

Yes, the entity is making a GST-free supply under item 4 in the table in subsection 38-190(1) of the GST Act when it supplies disability insurance to parents residing on an external Territory, to cover their child whilst the child attends day care on the external Territory.

Facts

The entity is an insurance provider. The entity is supplying disability insurance to parents residing on an external Territory. The disability insurance covers their child whilst the child attends day care on the external Territory.

The insurance policy issues from Australia.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Under section 38-190 of the GST Act, certain supplies of things other than goods or real property, for consumption outside of Australia, are GST-free. As a supply of insurance is not considered to be a supply of goods or real property, its GST status is appropriately considered under section 38-190 of the GST Act.

A contract of insurance gives the insured person a right to be indemnified if the insured event occurs. In this case, when the entity supplies disability insurance to the parents, the entity is supplying those parents with a right to be indemnified. Accordingly, item 4 in the table in subsection 38-190(1) to the GST Act (Item 4) which deals with the supply of rights, is the most relevant item in this situation.

Item 4 provides that a supply that is made in relation to rights is GST-free if:

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the rights are for use outside Australia; or

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the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Therefore, it is necessary to determine whether the supply of a right to be indemnified under the insurance policy, is the supply of a right that is for use outside Australia.

Under the insurance policy, the entity provides the insured with a right to be indemnified if the insured event occurs. The right to be indemnified is for use where the insured event or coverage of the risk is. If the insured event or risk is outside of Australia, the coverage of the risk or indemnity is outside Australia and the right to be indemnified is for use outside Australia.

Section 195-1 of the GST Act provides that for the purposes of the GST Act, 'Australia' does not include any external Territory. In this case, the entity is providing disability insurance to parents residing on an external Territory. The insurance policy indemnifies those parents against the risk of injury to their children, whilst they attend day care on the external Territory. As the risk that is covered by the insurance policy is outside Australia, then the use of the supply of that insurance takes place outside Australia.

As such, the supply by the entity of the insurance policy is covered by Item 4 and therefore, is GST-free under subsection 38-190(1) of the GST Act.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 38-190
   subsection 38-190(1) table item 4
   section 195-1

Keywords
Goods & services tax
Exports
Consumption outside Australia
GST-free
GST special rules
GST insurance
Insured
Insurers

Business Line:  GST

Date of publication:  24 January 2002

ISSN: 1445-2782