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Edited version of your private ruling
Authorisation Number: 1012589855783
Ruling
Subject: Insurance premiums
Question 1
Do you have to withhold on an insurance premium, paid to an overseas insurer?
Answer
Yes
Question 2
Is the withholding calculated on the gross amount including stamp duties, GST and other charges paid on behalf of the overseas insurer?
Answer
Yes
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.
The tax is paid to the ATO on the insurers behalf by you.
The premiums include:
· The base underwriter premium,
· Your fee income
· Broker commissions,
· Stamp duty,
· Other statutory charges, and
· GST.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 142.
Income Tax Assessment Act 1936 Section 143.
Reasons for decision
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, GST and other charges paid on behalf of the overseas insurer and passed on to the insured client.
Detailed reasoning
Subsection 142(2) of the Income Tax Assessment Act (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.
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 composition of the premium amount is determined by the insurer and is a reflection of the selling price of the insurance. Additionally, though a premium may have numerous components, it is the total amount of the consideration the insured is required to pay to secure the grant or renewal of the insurance cover. That is, the premium is a required payment for an insurance policy to have effect."
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:
· GST
· Stamp duty
· Fire services levy
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.
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 (section 142 of the ITAA 1936) subject to withholding to be collected and declared by you as per section 143 of the ITAA 1936.