Edited version of private ruling

Authorisation Number: 1011829657593

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Ruling

Subject: GST and supply of health insurance to a non-resident

Question

Is the supply of private health insurance under the arrangement between you and a non-resident (offshore entity) GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

You are a private health insurer registered under the Private Health insurance Act 2007 (Cth) and provide health insurance to persons in Australia, both permanent and temporary residents and temporary visitors, and are registered for GST purposes.

The offshore entity is based in a specified overseas country. The offshore entity is a company incorporated in the specified country and to the best of your knowledge is a non-resident of Australia for taxation purposes. The offshore entity is not registered for GST and based on the information available to you, you believe that the offshore entity has no presence in Australia in relation to the arrangements discussed below and, therefore, is not required to be registered.

The offshore entity and its affiliates enter into agreements outside of Australia for the provision of health insurance.

You have entered into an agreement with the offshore entity (the Agreement) for the provision of health insurance coverage.

Your obligations under the arrangement are set out in the Agreement. Pursuant to the Agreement, you have agreed to provide to the offshore entity the various services..

You advised that this private ruling request is limited to your supplies of private health insurance policies to the offshore entity.

Your contentions:

You submit that the offshore entity is supplied with a right under the Agreement for the offshore entity members to be provided with health insurance and that this view also results in the offshore entity being considered the recipient of the supply for GST purposes. You provide that the supply equates to the contractual flow being between you (the supplier) and the offshore entity (the recipient) and the actual flow of what is provided being from you to the offshore entity members as per Proposition 13 in Goods and Services Tax Ruling GSTR 2006/9.

You consider that the supply of the health insurance that you make to the offshore entity is GST-free under Item 4 in the table in subsection 38-190(1) of the GST Act (Item 4).

You consider that subsection 38-190(2) of the GST Act does not apply as the Agreement relates to a direct supply of health insurance to the offshore entity and not a supply of a right or option to acquire something else.

Summary

The supply of private health insurance under the arrangement between you and the offshore entity is GST-free under Item 4.

Detailed reasoning

GSTR 2006/9 explains, among other things, the Commissioner's view on the application of the GST Act to multi-party arrangements. As you have pointed out, Proposition 13 in GSTR 2006/9 discusses a multi-party arrangement and states 'when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow)'.

In this case, there is a contract between the offshore entity and you under which the offshore entity members are to be provided with the thing that is the subject of the supply between you and the offshore entity. Under the Agreement, you and the offshore entity have contracted for you to provide private health insurance (health insurance) to the offshore entity members in Australia.

We agree with your submission that in this case the contractual flow of your supply is to the offshore entity, while the actual flow of the supply is to the offshore entity members. Accordingly, the supply is 'made' to the offshore entity but 'provided' to the offshore entity members.

Section 9-40 GST Act provides that you must pay the GST payable on any taxable supply that you make.

A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. Section 9-5 states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act)

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· you make the supply of health insurance to the offshore entity for consideration,

· the supply is in the course of your enterprise,

· the supply is connected with Australia as you make the supply through an enterprise that you carry on in Australia, and

· you are registered for GST.

Additionally, the supply of the health insurance to the offshore entity is not input taxed under a provision of the GST Act or a provision of another Act. Therefore, what remains to be considered is whether the supply is GST-free.

Section 38-190 of the GST Act specifies the circumstances where the supplies of things other than goods or real property, for consumption outside Australia are GST-free.

As a supply of health insurance is not considered to be a supply of goods or real property, its GST status is appropriately considered under section 38-190 of the GST Act.

Goods and Services Tax Ruling GSTR 2003/8 examines what types of supplies are capable of being covered by Item 4. Paragraph 95 of GSTR 2003/8 provides that when the contract of insurance is entered into, there is a supply by way of creation of a right. This paragraph states:

95. The general law recognises that what an insured obtains under a contract of insurance is a chose in action. Where, under the contract of insurance, the insurer agrees to compensate the insured for a loss that the insured may sustain through the happening of an event, this chose in action is a right to be indemnified if the insured event occurs. There is a supply by way of a creation of a right when the contract of insurance is entered into.

Accordingly, Item 4 is of particular relevance to this case. Item 4 provides that a supply that is made in relation to rights is GST-free if:

(a) the rights are for use outside Australia, or

(b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Paragraph 120 of GSTR 2003/8 states:

120. The contract of insurance gives the insured party a right to be indemnified if the insured event occurs. The right to be indemnified is for use where the insured event or coverage of the risk is located.

According to paragraph 121 of GSTR 2003/8, where the risk that is covered by the insurance policy is outside Australia, the right is for use outside Australia.

In your case, the requirement of paragraph (a) of Item 4 is not met as the risk that is covered by the insurance policy is not for use outside Australia. The right to be indemnified is for use in Australia.

Paragraph (b) of Item 4 requires that the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when an entity that is not an Australian resident is outside Australia when the thing supplied is done.

Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

GSTR 2004/7 provides that the phrase 'the thing supplied is done' has the same meaning as the expression 'the thing is done' in paragraph 9-25(5)(a) of the GST Act. These phrases are discussed in Goods and Services Tax Ruling GSTR 2000/31 which explains when a supply is connected with Australia under section 9-25 of the GST Act.

GSTR 2000/31 provides that if the supply is the creation, grant, transfer, assignment or surrender of any right, the thing that is done is the creation of that right in the recipient, the granting, transfer, or assignment of that right to the recipient or the surrendering of that right. In this context, the thing is done where the right is created, granted, transferred, assigned or surrendered respectively.

You advised that the offshore entity is a not a resident of Australia for taxation purposes and has no presence in Australia in relation to the supply of the health insurance. Based on the information that you have provided, the supply meets the requirements of paragraph (b) of Item 4 as the offshore entity is not an Australian resident and is outside Australian when the thing supplied is done. Therefore, the supply of the health insurance to the offshore entity is covered under Item 4.

However, subsection 38-190(2) of the GST Act negates, in certain circumstances, the GST-free status that would otherwise apply to a supply covered by Item 4. This subsection states:

(2) However, a supply covered by any of the items 1 to 5 in the table in subsection (1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be *connected with Australia and would not be *GST-free.

Paragraphs 143 to 148 of GSTR 2003/8 examine the operation of subsection 38-190(2) of the GST Act. Paragraphs 143, 144 and 148 state:

143. Subsection 38-190(2) is designed to ensure that the supply of a right or option is not GST-free if the right or option can be redeemed for the supply of something else, the supply of which would be a taxable supply. A supply to which subsection 38-190(2) applies is not GST-free even if item 4 or another item in the table in subsection 38-190(1) would otherwise apply.

144. Without subsection 38-190(2), the supply of a thing that is connected with Australia, and not otherwise GST-free, could occur without GST being payable, if all of the consideration were to be provided for the granting of a right or option to acquire the thing, notwithstanding that when the thing itself is supplied it may be consumed in Australia.

…

148. Where a transaction involves a supply of a right or option to acquire something, the supplier will usually enter into an obligation to supply the thing if the right or option is exercised. The fact that the transaction also involves an entry into an obligation does not in itself preclude the operation of subsection 38-190(2) if there is a relevant supply of a right or option to acquire something.

We agree with your submission that subsection 38-190(2) of the GST Act does not apply in your case. Under the Agreement, a supply of health insurance is made to the offshore entity but provided to the offshore entity members. The Agreement provides the offshore entity members with a right to be indemnified if medical services are acquired in Australia. However, the Agreement does not provide the offshore entity or the offshore entity members a right or option to acquire something else.

Accordingly, the supply of the health insurance under the arrangement between you and the offshore entity is GST-free under Item 4.

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