ATO Interpretative Decision
ATO ID 2004/408 (Withdrawn)
Goods and Services Tax
GST and 'instalment deposit' provided by an insured as an initial instalment for annual insurance policy premiumFOI status: may be released
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This ATO ID is withdrawn as it is superseded by GSTR 2006/2 Goods and services tax: deposits held as security for the performance of an obligation.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 an 'instalment deposit' received by the entity, an insurer, a deposit for the purposes of Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when an insured's subsequent instalment payments are calculated as a percentage of the total premium, less the amount paid for the 'instalment deposit'?
Decision
No, an 'instalment deposit' received by the entity is not a deposit for the purposes of Division 99 of the GST Act when an insured's subsequent instalment payments are calculated as a percentage of the total premium, less the amount paid for the 'instalment deposit'.
Facts
The entity is an insurer that is registered for goods and services tax (GST). The entity supplies insurance to an insured, under an insurance policy. The insured is required to pay an annual insurance premium to maintain the insurance policy.
The insured had the option of either paying the annual insurance policy premium in a lump sum payment or by way of instalments and elected to pay by instalments.
Under the terms of the insurance policy, the insured is required to pay the entity an initial instalment. The initial instalment is known as an 'instalment deposit'. Payment of the 'instalment deposit' is to be followed by further instalment payments.
The insured's subsequent instalment payments are calculated as a percentage of the total premium, less the amount paid for the 'instalment deposit'.
Reasons for Decision
Under Division 99 of the GST Act, a deposit that is held to secure the performance of an obligation, will not be treated as consideration nor attributed until such time as it is either forfeited or is applied as consideration.
Paragraph 4 of Goods and Services Tax Determination GSTD 2000/1 provides that Division 99 of the GST Act only applies to those deposits that are at risk of forfeiture on failure to perform an obligation under the agreement. If an amount is actually part payment for a supply, Division 99 of the GST Act does not apply.
When the election is made to pay the insurance policy premium by instalments, the insured is required to pay the entity an 'instalment deposit'. Under the terms of the insurance policy, subsequent instalment payments are calculated by reducing the total premium payable by the amount paid for the 'instalment deposit'. While the 'instalment deposit' is referred to as a deposit, it is not held as security, but rather the entity applies this payment, together with the other instalment payments, to form the overall consideration due for the insured's insurance policy premium. The insured is simply exercising its option to pay the premium by instalments and the 'instalment deposit' is actually a part payment for the entity's supply of insurance.
Therefore, the 'instalment deposit' received by the entity is not a deposit for the purposes of Division 99 of the GST Act when the insured's subsequent instalment payments are calculated as a percentage of the total premium, less the amount paid for the 'instalment deposit'.
Date of decision: 29 July 2002
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
Division 99
Related Public Rulings (including Determinations)
Goods and Services Tax Determination GSTD 2000/1
Keywords
Goods and services tax
GST special rules
GST deposits as security
GST insurance
Insured
Insurers
GST insurance policy
ISSN: 1445-2782
| Date: | Version: | |
| 29 July 2002 | Original statement | |
| You are here | 22 February 2008 | Archived |