Edited version of your private ruling

Authorisation Number: 1012567771866

Ruling

Subject: Goods and services tax (GST) and supplies of insurance by offshore companies

Question 1

Is there a GST liability on the base premium amount for an insurance policy entered into by an offshore insurance company?

Answer

There will only be a GST liability on the base premium amount if

· the insured acquires the insurance solely or partly for the purpose of an enterprise that the insured carries on in Australia, but not solely for a creditable purpose, and

· the insured is registered or required to be registered for GST, and

· the supply of the insurance is not GST-free or input taxed.

(See reasons for decisions for more detailed guidance on these requirements.)

If GST is payable on the base premium amount, the GST is payable by the insured to the Australian Taxation Office (ATO). The GST payable if any is not payable by the insurance company or you.

Question 2

Is there a GST liability on the component of the premium that covers the commission the offshore insurance company is liable to pay you?

Answer

There will only be a GST liability on the part of the premium that covers the commission the offshore insurance company is liable to pay you if

· the insured acquires the insurance solely or partly for the purpose of an enterprise that the insured carries on in Australia, but not solely for a creditable purpose, and

· the insured is registered or required to be registered for GST, and

· the supply of the insurance is not GST-free or input taxed.

(See reasons for decisions for more detailed guidance on these requirements.)

If GST is payable on the part of the premium that covers the commission the offshore insurance company is liable to pay you, the GST is payable by the insured to the ATO. The GST payable if any is not payable by the insurance company or you.

Relevant facts and circumstances

You are registered for GST.

You are an insurance broker operating in Australia.

You do not supply insurance.

Your clients include offshore insurance companies. You are not a branch of these companies.

Entities approach you for assistance in choosing and obtaining insurance from the offshore insurance companies. You obtain insurance quotes from a number of insurance companies and pass these on to the entities seeking insurance.

The insurance would cover things such as liability, health cover for overseas employees, ship hull insurance, marine cover, just to give some examples of the types of risks that could be covered. The risk that the insurance protects against may be located overseas or in Australia.

The offshore insurance companies pay you a commission for each insurance policy.

The insurance premium is made up of two components -a base premium amount and an amount to cover the commission that the insurance company is liable to pay you.

The insured informs the overseas insurance company of their acceptance of the insurance offer by e-mail or phone either directly or through you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-25(5)

A New Tax System (Goods and Services Tax) Act 1999 section 9-25(6)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-70

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(1)

A New Tax System (Goods and Services Tax) Act 1999 section 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 section 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-55(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-55(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1)

A New Tax System (Goods and Services Tax) Act 1999 section 40-100

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-5(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-12(1)

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.09

Reasons for decisions

Questions 1 and 2

Summary

GST is not payable on the supply of the insurance under the basic rules because the supply of the insurance is not connected with Australia.

However, under a special rule, a supply of insurance that is not connected with Australia may be subject to GST if the insured acquires the insurance solely or partly for the purposes of an enterprise that the insured carries on in Australia, but not solely for a creditable purpose. Where this special rule applies, the insured is liable for the GST to the ATO.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 are not liable for GST on the insurance premium

You are not liable for GST on either component of the total premium because the premium is not consideration for a supply that you make. The premium is consideration for a supply of insurance made by the insurance company.

The insurance company is not liable for GST on the insurance premium

Subsection 9-25(5) of the GST Act sets out when a supply of something other than goods or real property is connected with Australia. It states:

A supply of anything other than goods or *real property is connected with

Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an *enterprise that the supplier

*carries on in Australia; or

(c) all of the following apply

(i) neither paragraph (a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing;

(iii) the supply of the other thing would be connected with Australia.

In accordance with subsection 9-25(6) of the GST Act, an enterprise is carried on in Australia if the enterprise is carried on through a permanent establishment in Australia.

A supply of insurance is not a supply of goods or real property.

In accordance with paragraphs 95 and 96 of Goods and Services Tax Ruling GSTR 2003/8, a supply of insurance is a supply of a right to be indemnified against loss the insured may sustain though the happening of an event or a right to receive a certain sum upon the occurrence of an event. There is a supply by way of a creation of a right when the contract of insurance is entered into.

Therefore, the offshore insurance companies are supplying rights to the insured entities.

Paragraph 74 of Goods and Services Tax Ruling GSTR 2000/31 provides guidance on determining where the thing supplied is done in the case of supplies of rights. It states:

74. If the supply is the creation, grant, transfer, assignment or surrender of a right, the creation of that right in another, the granting, transfer or assignment of that right to another, or the surrender of that right, is done where the right is created in that other person, granted, transferred or assigned to that other person or surrendered respectively.

Paragraph 203 of GSTR 2000/31 states:

203. Whether a right is created, granted, transferred, assigned or surrendered in Australia will depend on how, in any given case, the creation, grant, transfer assignment or surrender is effected. For example, if the right to use intellectual property is granted by the execution of a written contract, the grant of that right is done in Australia if that contract is made in Australia.

In Entores Ltd v Miles Far East Corporation [1955] 2 QB 327; 2 All ER 493 Denning L J at paragraph 334 stated that with regard to instantaneous communication, the contract is completed when the acceptance is received by the entity that made the offer and the contract is made at the place where the acceptance is received.

In your case, the insured informs the overseas insurance company of their acceptance of the insurance offer through instantaneous communication (by e-mail or phone). They may do this directly or through you. This acceptance is received by the overseas insurance company overseas. Therefore, the contract is made overseas. Hence, the thing supplied is done overseas.

The insurance company is offshore. Additionally, you are not a permanent establishment of the insurance company in Australia. Therefore, the insurance company does not supply the insurance through an enterprise that it carries on in Australia.

A supply of insurance is not a supply of a right to acquire another thing the supply of which would be connected with Australia.

Therefore, the supply of the insurance is not connected with Australia.

As the requirement of paragraph 9-5(c) of the GST Act is not met, the insurance company does not have a GST liability on the supply of the insurance premium.

The insured may be liable for GST on the insurance premium

Subsection 84-5(1) of the GST Act provides a special rule that makes supplies from offshore taxable supplies under certain circumstances. It states:

A supply of anything other than goods or *real property that is

(a) a supply not *connected with Australia; or

(b) a supply connected with Australia because of paragraph 9-25(5)(c) is a taxable supply if:

(c) the *recipient of the supply acquires the thing supplied solely or partly for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and

(d) the supply is for *consideration; and

(e) the recipient is *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.

The supply of the insurance is not a supply of goods or real property.

The supply of the insurance is not connected with Australia.

The supply of the insurance is for consideration.

Therefore, the supply of the insurance will be a taxable supply under subsection 84-5(1) of the GST Act where:

· the insured acquires the insurance solely or partly for the purpose of an enterprise the insured carries on in Australia, but not solely for a creditable purpose, and

· the recipient is registered or required to be registered for GST, and

· the supply of the insurance is not GST-free or input taxed.

In accordance with subsection 11-15(1) of the GST Act, the insured will acquire the insurance for a creditable purpose to the extent that it acquires it in carrying on their enterprise. However, in accordance with subsection 11-15(2) of the GST Act, the insured will not acquire the insurance for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed (that is, the insurance premium is a cost incurred by the insured in carrying on their enterprise of making input taxed supplies) or the acquisition is of a private or domestic nature.

In accordance with subsection 40-5(1) of the GST Act, financial supplies are input taxed. Financial supplies include life insurance. Goods and Services Tax Ruling GSTR 2002/2 provides information on financial supplies.

In accordance with subsection 40-35(1) of the GST Act, renting out residential premises is input taxed.

In accordance with section 40-100 of the GST Act, a supply of precious metals may be input taxed.

Item 4 in the table in subsection 38-190(1) of the GST Act provides that a supply of rights for use outside Australia is GST-free.

Paragraph 118 of GSTR 2003/8 states:

118. A supply of insurance is for use where coverage of the risk is located. The insured has a right to be indemnified or a right to payment of a specified sum if the insured event occurs. The fact that a claim may be made in a particular place following the occurrence of an event, or that a claim must be made on the insurer in a particular place, does not mean that the right is for use in that place. In addition, the fact that no claim may be made on an insurance policy does not affect where the rights under the insurance policy are for use.

Therefore, the supplies of insurance made by the offshore insurance companies in your case that cover risk located overseas are GST-free under item 4 in the table in subsection 38-190(1) of the GST Act because the supply of the insurance is a supply of a right for use outside Australia.

In accordance with subsection 38-55(1) of the GST Act, a supply of *private health insurance is GST-free. Only health insurers registered with the Private Health Insurance Administration Council could supply insurance that meets the definition of private health insurance for the purposes of subsection 38-55(1) of the GST Act.

In accordance with subsection 38-55(2) of the GST Act, a supply of insurance against liability to pay for services supplied by ambulance is GST-free.

In accordance with subsection 84-10(1) of the GST Act, where GST is payable by virtue of subsection 84-5(1) of the GST Act, the insured is liable to pay the GST to the ATO. Neither the insurance company nor you have a GST liability to the ATO on the supply of the insurance.

In accordance with subsection 84-12(1) of the GST Act, the GST liability would be 10% of the total premium amount (this is different to the normal rule for calculating GST, which is that GST is 1/11^th of the GST inclusive price).

Additional information

Your supply of brokering services to the offshore insurance company is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act (item 2) because:

· it is a supply of something other than goods or real property, and

· you make the supply to a non-resident who is not in Australia in relation to the supply when the services are performed, and

· the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia.

Therefore, you do not have a GST liability on the commission you receive from the offshore insurance company.

Goods and Services Tax Ruling GSTR 2004/7 provides the ATO view on item 2.

The GSTR public rulings can be found by typing in GSTR followed by the ruling number in an internet search engine.

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