ATO Interpretative Decision
ATO ID 2002/1043
Goods and Services Tax
GST and supply by resident insurance broker to a non-resident underwriterFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, an Australian resident insurance broker, making a GST-free supply under item 2 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 its services to a non-resident underwriter?
Decision
Yes, the entity is making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when it supplies its services to a non-resident underwriter.
Facts
The entity is an Australian resident insurance broker. The entity is supplying services to a non-resident underwriter.
The entity provides the non-resident underwriter with details of potential Australian clients. After the underwriter accepts the risk, it faxes the entity the premium calculation. After the Australian client accepts the premium, the entity faxes a confirmation to the underwriter. The underwriter then issues the Australian client with a certificate of cover, signed and issued by the underwriter outside Australia. The cover is not directly connected to real property situated in Australia.
The entity collects the premium from the Australian client and banks the money into its trust account. The entity arranges payment of all Government charges.
When claims are made the entity forwards all details of the claim to the non-resident underwriter, and where necessary appoints an assessor. Once all facts are known, it is the underwriter, not the entity, that admits liability. Where claims are less than a specified sum, the entity pays them out of the premium money collected and forwards the remainder to the underwriter.
The entity receives a commission from the underwriter for these services. The underwriter is not in Australia at the time that these services are provided and does not have a representative in 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 Australia, are GST-free. As the entity is supplying services and not goods or real property, it is appropriate to consider section 38-190 of the GST Act in relation to this supply.
Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done, is GST-free where:
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- the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or
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- the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.
The non-resident underwriter is not in Australia when the entity makes its supply of services. In addition, the non-resident underwriter does not have a representative in Australia. The entity is supplying the non-resident underwriter with services that involve the provision of information and the management of the underwriter's clients' cover. This is not a supply of work physically performed on goods situated in Australia nor is it directly connected with real property situated in Australia. Therefore, the entity's supply meets the requirements in Item 2.
However, subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if:
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- it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and
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- the supply is provided, or the agreement requires it to be provided, to another entity in Australia.
The entity's supply is under an agreement entered into with a non-resident insurance broker. Therefore, it needs to be determined whether the supply is provided, or is required to be provided, to an entity in Australia. Although the entity is providing information in relation to the Australian client and is managing the Australian client's cover, the entity is providing its services and information to the non-resident underwriter. Therefore, the entity is not providing its supply to an entity in Australia and subsection 38-190(3) of the GST Act does not exclude the entity's supply from being GST-free under Item 2.
As such, the entity is making a GST-free supply under Item 2 when it supplies services to a non-resident underwriter.
[Note: The GST status of the supply by the entity to the Australian client is discussed in ATO ID 2002/1044.]
Date of decision: 19 December 2001
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 38-190
subsection 38-190(1)
subsection 38-190(1) table item 2
subsection 38-190(3)
ATO ID 2002/1044
Keywords
Goods & services tax
GST free
GST international services
GST insurance
Non-resident insurer
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 19 December 2001 | Original statement |
| 9 May 2008 | Archived |