ATO Interpretative Decision

ATO ID 2005/271 (Withdrawn)

Goods and Services Tax

GST and compulsory third party premium selection test
FOI status: may be released
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Has the entity, an operator of a compulsory third party (CTP) scheme, satisfied the premium selection test in subsection 79-5(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when:

•
the entity has issued a CTP insurance policy notice which offers a premium based on information the entity holds regarding the insured's entitlement to input tax credits
•
the entity informs the insured on the CTP renewal documents that the premium has been calculated with reference to the insured's input tax credit entitlement and to contact the entity if this entitlement is incorrect so that the correct premium can be offered, and
•
the insured checks the correctness of the information on the CTP renewal notice and pays the premium on the renewal notice?

Decision

Yes, the entity has satisfied the premium selection test in section 79-5(2) of the GST Act.

Facts

The entity is an operator of a CTP scheme. The entity provides different CTP premiums by:

•
acting on information provided by the insured or by reference to registration information to initially determine whether or not there is an input tax credit entitlement, (such as information indicating whether or not the vehicle is a business vehicle)
•
generating payment and renewal documents on the basis of that determination, and
•
informing the insured (in the renewal documents) that the premium offered has been calculated with reference to their input tax credit entitlement and requesting the insured contact the entity to seek a change in the quotation of the premium if the information in relation to the input tax credit entitlement is incorrect.

A brochure is sent to every insured upon renewal and is readily available for new policies. The brochure, renewal notice and other supportive documentation make it clear that there are two types of CTP premiums on offer to all CTP insureds. One for goods and services tax registered businesses which are entitled to claim an input tax credit on the premium and another for entities who are not so entitled.

The renewal notice also indicates that the premium offered is based on the input tax credit entitlement of the insured. If the premium offered is incorrect, the insured is advised not to pay the premium but to contact the entity to ensure the correct premium is offered.

Reasons for Decision

Subsection 79-5(2) of the GST Act outlines the requirements of the premium selection test.

For the test to be satisfied:

•
the operator of the CTP scheme has to offer more than one premium to the insured
•
the insured has to select one of those premiums
•
the differences in the premiums offered by the CTP operator have to be based on there being an input tax credit entitlement, or there not being an input tax credit entitlement, and
•
the premium for the policy has to arise from the offer and selection.

The entity sends a CTP insurance policy notice to the insured with a predetermined premium amount. The insurance policy notice and supporting documentation make it clear that the premium was calculated based on the insured's entitlement to input tax credits. As such, the entity offers more than one kind of premium to CTP insureds, one for insured's able to claim input tax credits and another for insured's that are not able to claim input tax credits. Therefore, the first requirement has been satisfied as the entity offers more than one premium to CTP insureds.

The entity requests that the insured only to pay the premium on the notice if the information in relation to their input tax credit entitlement is correct. If the information is not correct the insured is requested to seek a change in the quotation of the premium and the entity will issue a new notice based on the insured's correct input tax credit entitlement. The insured decides if it will pay the amount on the notice or request a different premium. Therefore, the second requirement has been satisfied as payment of the premium is a selection by the insured.

The entity calculates the premium it will offer based on the insured's input tax credit entitlement. Therefore, the third requirement has been satisfied as the difference in the premiums offered by the entity are based on the insured's entitlement to input tax credits.

[ History note: Paragraph amended 17 October 2005, to change the reference in the first sentence from 'income tax credit entitlement' to 'input tax credit entitlement'.]

The premium for the policy results from the CTP insurance policy notice offer made by the entity and the insured's selection of the correct premium. Therefore, the final requirement has been satisfied as the premium is a result of offer and selection.

Therefore, the entity has met the premium selection test in subsection 79-5(2) of the GST Act.

Date of decision:  1 August 2005

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 79-5(2)

Keywords
Goods and services tax
GST insurance
Insured
Insurers

Business Line:  GST

Date of publication:  30 September 2005

ISSN: 1445-2782

history
  Date: Version:
  1 August 2005 Original statement
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