ATO Interpretative Decision
ATO ID 2008/83
Income Tax
Non-Resident Insurers: principal office or branch in AustraliaFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a non resident insurer with a dependent agent in Australia considered to have a principal office or branch established in Australia for the purposes of section 142 of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. A non resident insurer with a dependent agent in Australia is not considered to have a principal office or branch established in Australia for the purposes of section 142 of the ITAA 1936.
Facts
A syndicate in the Lloyd's insurance market in London provides underwriting for general insurance in Australia.
The syndicate members are residents of the United Kingdom.
The syndicate does not occupy premises or carry on activities in Australia.
The syndicate does not have any employees in Australia.
An Australian resident company acts as a cover holder on behalf of the underwriting members of the syndicate.
The Australian resident company has a binding authority to write business and conclude contracts on behalf of the underwriting members of the syndicate for contracts of insurance in respect of property. The Australian resident company carries out this function in the capacity as an agent for the underwriting members of the syndicate.
Reasons for Decision
Division 15 of Part III of the ITAA 1936 sets out certain taxation consequences for non resident insurers.
Prior to the introduction of the ITAA 1936 the income tax provisions relating to non resident insurers were contained in section 28B of the Income Tax Assessment Act 1922 (ITAA 1922). As part of the re-write of the taxation law in the 1930s, the principles contained in section 28B of the ITAA 1922 were incorporated into Division 15 of Part III of the ITAA 1936.
Division 15 of Part III of the ITAA 1936 contains section 142 of the ITAA 1936 which includes in the assessable income of the non resident insurance premiums in respect of certain insurance contracts, except where those contracts were made by a principal office or branch.
The terms 'principal office' and 'branch' were originally used in section 28B of the ITAA and Division 15 of Part III of the ITAA 1936 however these terms were not defined. As there is no statutory definition of the terms 'principal office' or 'branch' in Division 15 of the ITAA 1936 or else where in the ITAA 1936 and Income Tax Assessment Act 1997 or other related Acts we rely on the common dictionary usage of those words .
The Macquarie Dictionary 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines the word 'principal' as 'first or highest in rank importance, value, etc ; chief foremost', and the word 'office' as 'the room or rooms in which clerical work of an industrial or other establishment is done' The term 'principal office' is often interchanged with the term 'head office' or 'main office'. The word 'branch' is defined as 'a local operating division of a company, chain store or the like'.
The Explanatory Memorandum (EM) to the Income Tax Assessment Bill 1935 preserves a common usage of the terms themselves. The terms 'principal office' or 'branch' within the EM are referred to in the context of a non-resident insurer who carries on insurance business or transacts insurance business directly either by means of a principal office or a local branch which has been established in Australia and not of insurance business effected through an agent on behalf of the non resident insurer.
In the present arrangement, the syndicate does not carry on insurance business or transacts insurance business directly either by means of a principal office or branch which has been established in Australia, other than through the activities undertaken by the Australian resident company as its agent in Australia. Accordingly the syndicate is not considered to have a principal office or branch established in Australia for the purposes of Division 15 of Part III of the ITAA 1936.
Date of decision: 28 May 2008Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1936
Division 15 of Part III
section 142
section 28B Related ATO Interpretative Decisions
ATO ID 2007/181
ATO ID 2008/31
Other References:
The Macquarie Dictionary 2001, rev.3rd edn, The Macquarie Library Pty Ltd, NSW
Income Tax Assessment Bill 1935
Explanatory Memorandum to Income Tax Assessment Bill 1935
Keywords
Non-resident insurance industry
Non-resident insurer
Insurance industry
ISSN: 1445-2782