Edited version of private ruling

Authorisation Number: 1011765692376

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Ruling

Subject: GST and Insurance

Questions

1. Is the insurance premium and/or stamp duty charged by a club association consideration for the taxable supply of membership?

2. Is the club association entitled to claim an input tax credit on the insurance premium?

Answers

1. Yes. Where the club association charges the premium and/or stamp duty this is part of the consideration for the supply of membership and will be a taxable supply.

2. Yes. Provided the club association makes a creditable acquisition from the insurer, they are entitled to claim an input tax credit's for the purchase of the insurance policy.

Facts

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

Membership to the association is open to affiliated clubs that embrace the objectives of the association.

An individual cannot be a direct member of the club association, rather an individual will need to join an affiliated club.

Membership by an individual member to an affiliated club allows the individual to participate at affiliated club activities.

The club association charges annual fees to affiliated clubs for membership. The annual fees consist of an annual affiliated club fee and insurance (Club Fees) and annual members fees and insurance (Member Fees).

Affiliated Clubs submit a member registration and insurance form to the club association with their payment of the Club Fees and Members Fees.

The club association has notified in a letter to the affiliated clubs that Club Fees and Member Fees are made up of various components which include administration fees, joining fees, insurance, the club association levy and/or the optional subscription to a newsletter.

The club association acquires personal accident and illness insurance policy (insurance policy) from an insurer.

The amounts charged by the club association to affiliated clubs referred to as the insurance for individual members joining the affiliated clubs, are amounts equal to that quoted by the insurer to the club association.

The insurance policy purchased by the club association covers the association itself, its affiliated clubs and current individual members.

Copies of the insurance policy documents and a copy of the relevant tax invoice from the insurer show that the insured entity (policyholder) is the club association.

The tax invoice also shows that the premium charged for the insurance policy by the relevant insurer to the club association includes GST, however no GST has been charged on the stamp duty component.

The club association includes the insurance as part of their income and remits the GST to the ATO on their Activity Statement according to the same GST portion charged by the insurer.

Reasons for decision

Question 1

Is the premium and/or stamp duty charged by the club association part of the consideration for the taxable supply of membership?

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that in order for a taxable supply to have been made, if must satisfy the following criteria:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise you carry on

· the supply is connected with Australia; and

· you are registered or required to be registered.

However the supply is not a taxable supply if it is GST-free or input taxed.

In this case the club association makes supplies to affiliated clubs of membership. The supply is made in the course of furtherance of the enterprise, is connected with Australia and the club association is registered for GST. The supply of membership is not a supply which is GST-free or input taxed. However what remains to be determined is the consideration received by the club association for the supply.

Consideration is defined in section 9-15 of the GST Act which states:

(1) Consideration includes:

any payments, or any act or forbearance, in connection with a supply of anything; and

any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

You have asserted that the club association is acting as an agent in respect of the fees received from individual members for the insurance policy. This is because the club association does not charge more than the amount which is quoted by the insurer for insurance of individual members. Therefore the amount of the insurance policy is not consideration for any supply by the club association.

Goods and services tax ruling GSTR Goods and services tax: agency relationships and the application of the law (GSTR 2000/37), describes what is meant by the principle/agency relationship. Paragraphs 10 to 12 of this ruling state:

10. An intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal. For an insurance policy, the intermediary is often called an insurance broker. The party who authorises an insurance broker to act on their behalf is called the insured (the recipient of the supply). Also, if appropriately authorised, an insurance broker could act as an agent on behalf of the insurer.

11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

12. The principal is bound by the acts of an agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.

In this case we do not consider that the club association is acting as an agent for the individual members and/or the insurer in accordance with GSTR 2000/37. This is because the club association is not being authorised by the individual members or the insurer to act on their behalf.

In addition, the club association is the entity that makes the acquisition of the insurance policy. This is evidenced by the club association paying the insurance policy (including the premium and stamp duty), and being the named policyholder. Therefore it can not be concluded that an agency relationship exists.

Based on the facts, the club association charges an annual fee to the affiliated clubs which consists of the Club Fee and Member Fee. The affiliated clubs pay these annual fees and submit a member registration and insurance form to the club association with their payment. Although the club association notifies affiliated clubs of the various components which make up the annual fees such as insurance, administration and levies, these amounts represent the consideration under section 9-15 of the GST Act for the supply of membership.

Consequently, the club association will make a taxable supply as all the requirements of section 9-5 are satisfied and the relevant amount of GST will be remitted to the ATO.

Question 2

Is the club association entitled to claim an input tax credit on the insurance premium charged by the insurer?

Section 11-20 of the GST Act provides that an entity is entitled to claim an input tax credit for any creditable acquisition.

Section 11-5 provides that you make a creditable acquisition if:

· you acquire anything solely or partly for a creditable purpose

· the supply of the thing to you is a taxable supply

· you provide consideration for the supply; and

· you are registered or required to be registered.

In this case, the club association has acquired an insurance policy from an insurer. The insurance policy is acquired by the club association as part of its activities and is for a creditable purpose. The tax invoice from the insurer shows that the insurance policy has a premium component which includes an amount of GST, and a stamp duty component which does not include GST. Further the club association has provided consideration for the policy (in the form of a monetary payment) and is registered for GST.

Therefore, based on these facts the insurer will satisfy the requirements of section 11-5 of the GST Act and to the extent they have paid GST on the insurance policy will be entitled to claim an input tax credit on the relevant Activity Statement.