Edited version of private ruling

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Ruling

Subject: Attribution of GST

Question 1

Is the GST payable on the renewal of insurance attributable to the tax period in which you issue the Renewal Notice, or when any of the consideration is received for the supply?

Answer

The GST payable on the renewal of insurance is attributable to the tax period in which any of the consideration is received for the supply.

Relevant facts and circumstances

You provide insurance for specified clients.

Your annual insurance policies take effect from a specified time and date.

Prior to the expiry of the current insurance policy, Renewal Notice is issued to each client setting out the classes of insurance and premiums quoted.

You provided us with a copy of a typical Renewal Notice', which provides:

· the period of premium

· policy number; product; premium; total amount including GST and stamp duty payable.

· 'this renewal notice will be a tax invoice for GST when you make payment'

Upon receipt of the annual Renewal Notice, the client may elect to renew the insurance policy by payment of the amount quoted.

The consideration is paid in a single payment each year and not on a progressive or periodic basis.

The client may choose to alter the insurance coverage or select an alternative insurer.

You account for GST on a non cash basis.

Detailed reasoning

Section 29-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides when GST is attributable on your taxable supplies.

Under subsection 29-5(1) of the GST Act if you do not account for GST on a cash basis, the GST payable by you on a taxable supply is attributable to:

(a) the tax period in which any of the consideration is received for the supply; or

(b) if, before any of the consideration is received, an invoice is issued relating to the supply the tax period in which the invoice is issued.

Section 195-1 of the GST Act defines an invoice as a document notifying an obligation to make payment.

In answering your question we need to consider whether the issuing of the Renewal Notice for your supply of insurance is a document which notifies the client of the obligation to pay the insurance premium, or is it an offer for future insurance.

Goods and Services Tax Ruling GSTR 2000/34 (GSTR 2000/34) discusses the issue of what is an invoice for GST purposes.

Paragraph 25 and 26 of this ruling state:

25. The words 'obligation to make a payment' refer in our view to a legal obligation which is analogous to being 'required to pay'. A party can only be regarded as under an obligation to make a payment if '...there is a requirement for either an actual payment or, at least, a present obligation to pay a sum certain at some future date'

26 The existence of an obligation to pay will depend on the terms of the contract which govern the supply. In some circumstances, an obligation to pay may arise at a point in time preceding the time of supply, however, this will depend on the intention of the parties. A supplier who has completed all that is required under the contract to demand payment of some or all of the contract price may issue a document notifying the recipient of an obligation to pay that part of the supply consideration. A document of this nature is an invoice for the purposes of the GST Act.

Further to this, paragraph 45 of GSTR 2000/34 provides an example of whether an insurance renewal notice is considered an invoice.

Example: Insurance renewal notice

45. Cheryl receives a renewal notice for a house and contents insurance policy. The policy sets out the details of sums insured, the period of insurance and the amount payable. This document is not an invoice as it is only an offer to enter into a new contract with the insurance company. Cheryl accepts the offer by making a payment The GST payable by the insurance company on the supply is attributable to the tax period in which Cheryl makes the payment.

We consider that, where a document for renewal is raised before a contract is made, GST does not become payable on the date the document is raised. That is because GST is only payable on taxable supplies. Therefore, GST is not payable until the insurance has been supplied. The contract is formed when insurance is offered and the client accepts. As per the above, example the offer is accepted at the time the client makes payment.

In your submission you have provided that your clients, on receipt of the Renewal Notice may choose to alter, or not renew their insurance policy, or in the instance of a client not paying the premium by the due date, you will send a notice to the client instructing that the policy will not be renewed.

On the facts provided we consider that the document "Renewal Notice" is not an invoice, but notification to your client providing them with an offer to enter into a contract for insurance. Therefore, when you send out a Renewal Notice, the GST on the supply of insurance renewal is attributable to the tax period in which your client provides any of the consideration for this supply, as per paragraph 29-5 (1)(a) of the GST Act.