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Edited version of your private ruling
Authorisation Number: 1012583624297
Ruling
Subject: GST and insurance for overseas franchisees
Question 1
Should GST be charged on the insurance cover for your overseas franchisees?
Answer
No.
Relevant facts and circumstances
You are looking to place insurance cover for your overseas franchisees. You are based in Australia. All invoicing will be done in Australia as well as the underwriting, claims handling and broking.
All works carried out by the franchisees and covered by the insurance will be done overseas.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-190.
Reasons for decision
Summary
Your supplies of insurance cover for your overseas franchisees are GST-free.
Detailed reasoning
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.
GST law recognises rights as something that can be supplied and therefore subject to GST. Item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 allows for a supply that is made in relation to rights to be GST-free if either:
· the rights are for use outside Australia; or
· the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.
The Australian Taxation Office view as espoused in the Goods and Services Tax Ruling GSTR 2008/3 is that 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 your supplies of insurance cover to your overseas franchisees will be GST-free as the rights are for use outside Australia.
Additionally, your supplies of insurance may also be GST-free where the overseas franchisees are not Australian residents for income tax purposes and remain outside Australia in relation to your supply of insurance cover. Note that the presence of an agent or representative of an overseas franchisee in Australia will mean that the franchisee is in Australia if your supply is made through the agent/representative.