ATO Interpretative Decision

ATO ID 2002/1044

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 Australian resident insurance broker, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies brokerage services to an Australian client where cover is supplied to the Australian client by an non-resident underwriter?

Decision

Yes, the entity is making taxable supply under section 9-5 of the GST Act when it supplies brokerage services to an Australian client where cover is supplied to the Australian resident by an non-resident underwriter.

Facts

The entity is an Australian resident insurance broker. The entity supplies brokerage services to an Australian client.

The entity places the Australian client's risks with a non-resident underwriter. The entity provides the non-resident underwriter with details of the Australian client's risk. After the underwriter accepts the risk, it faxes the entity the premium calculation. After the Australian client accepts the premium, the entity confirms, by fax, that the terms are acceptable. The non-resident 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 with real property situated in Australia.

The entity receives a brokerage fee from its Australian client for the services. The entity is in Australia at all times.

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

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

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it makes a supply for consideration; and

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the supply is made in the course or furtherance of an enterprise that it carries on; and

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the supply is connected with Australia; and

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the entity is registered or required to be registered for GST.

The entity, an insurance broker, is supplying brokerage services to its Australian client in return for a fee. This is a supply for consideration in the course of the entity's enterprise. As such the first 2 requirements in section 9-5 of the GST Act are met.

The third requirement in section 9-5 of the GST Act is that the entity's supply is connected with Australia. Therefore, it needs to be determined whether the entity is making a supply that is connected with Australia when it arranges a supply by a non-resident.

Subsection 9-25(5) of the GST Act provides that a supply of a thing other than goods or real property is connected with Australia if:

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the thing is done in Australia; or

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the supplier makes the supply through an enterprise that the supplier carries on in Australia.

In relation to the first limb, paragraph 62 of Goods and Services Tax Ruling GSTR 2000/31 provides that the meaning of 'done' depends on the nature of the thing being supplied. 'Done' can mean performed, executed, completed, finished etc depending on what is being supplied. Further, paragraph 65 of GSTR 2000/31 states that:

'If the 'thing' being supplied is a service, the supply is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia under paragraph 9-25(5)(a).'

The entity is performing its services in Australia. Therefore, even though the entity's service is the arranging for a supply to be made by a non-resident that is not in Australia, the entity's supply is still done in Australia. As such, the entity's supply is connected with Australia and the third requirement in section 9-5 of the GST Act is met.

The entity is registered for GST and the supply satisfies the other positive limbs in section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies brokerage services to an Australian client where cover is supplied to the Australian client by an non-resident underwriter.

[Note: The GST status of the supply by the entity to the non-resident underwriter is discussed in ATO ID 2002/1043.]

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 9-25(5)
   paragraph 9-25(5)(a)
   Division 38
   Division 40

Related Public Rulings (including Determinations)
GSTR 2001/31

Related ATO Interpretative Decisions
ATO ID 2002/1043

Keywords
Goods & services tax
Connected with Australia
GST insurance
Non-resident insurer
Taxable supply

Business Line:  GST

Date of publication:  20 November 2002

ISSN: 1445-2782