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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1012618714695

Ruling

Subject: Insurance premium and withholding

Question 1

Do you have to withhold on an insurance premium, paid to an overseas insurer?

Answer

Yes

Question 2

Does the gross amount of the premium including amounts for stamp duties and other charges paid to the overseas insurer form part of the assessable income of an insurer and subject to withholding?

Answer

Yes

Question 3

Does the GST component of the premium, paid to the overseas insurer form part of the assessable income of an insurer and subject to withholding?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2013,

Year ended 30 June 2014,

Year ended 30 June 2015.

The scheme commences on:

1 July 2012.

Relevant facts and circumstances

You sell an insurance policy i.e. a liability product.

You are the agent on behalf of a foreign insurer.

The risks are written overseas by this underwriter.

You have been deducting 3% Income Tax from the premium before remitting funds to the insurer. (10% of the premium income, multiplied by 30%).

The tax is paid to the ATO on the insurers behalf by you.

You complete an AAF return for the 3% withholding tax and pay ATO.

The premiums include:

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 142

Income Tax Assessment Act 1936 Section 143

Income Tax Assessment Act 1997 Section 17-5

Reasons for decision

Issue 1

Question 1 & 2

Summary

You are required to withhold on an insurance premium, paid to an overseas insurer and the amount of withholding is calculated on the gross amount including stamp duties, and other charges excepting GST, paid to the overseas insurer.

Detailed reasoning

Subsection 142(2) of the Income Tax Assessment Act 1936 (ITAA 1936) includes certain premiums that are paid or payable to an agent of a non-resident insurer in the assessable income of the insurer as Australian sourced income.

This indirectly implies that an amount which is not considered an amount of "assessable income" would logically be excluded from this calculation under subsection 142(2) of the ITAA 1936. As GST is an amount statutorily excluded from assessable income by section 17-5 of the Income Tax Assessment Act 1997 (ITAA 1997), it will not be included in the taxable income of an insurer under section 143 of the ITAA 1936 (see also ATO ID 2010/89: Income Tax Whether non-resident royalty withholding tax is based on the GST inclusive or GST exclusive amount paid in respect of royalties).

The taxable income amount as per section 143 of the ITAA 1936 of the insurer is equal to 10% of the total amount of premiums derived.

The term 'Premium' has not been defined for the purposes of income tax legislation and as such takes its ordinary meaning.

ATO ID 2013/59 considers what constitutes an insurance 'premium':

The ATO ID 2013/59 highlights the Royal and Sun Case which has considered amounts included in the ordinary meaning of a 'premium', for example:

An insurance premium for income tax purposes includes every amount paid by the insured to the insurer for the insurance cover. It is not relevant whether the amount payable has been divided into a number of parts in the insurance policy.

Thus, the premium will include amounts which are used to pay expenses such as stamp duty and GST on behalf of the overseas insurer.

However, as previously discussed amounts of GST are later excluded by way of a statutory section as non assessable non exempt income under section 17-5 of the ITAA 1997.

In conclusion, if GST is paid by a non-resident insurer, then the amount assessable under Division 15 does not include the GST paid on the premium.

The gross premium paid by your insured clients for their insurance cover to you (whether collected by you on behalf of your underwriter or otherwise), will form part of the assessable income, excluding any GST paid by the insurer, and will be subject to withholding to be collected and declared by you as per section 143 of the ITAA 1936.

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