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Edited version of your written advice
Authorisation Number: 1051492838726
Date of advice: 12 March 2019
Ruling
Subject: Stamp duty on insurance
Question
Is the amount of stamp duty included in the insurance premium subject to GST when the association includes the cost of insurance in the invoice for annual membership renewal?
Answer
No.
This ruling applies for the following period:
12 March 2019 to 12 March 2024
Relevant facts and circumstances
The association is a not-for-profit entity providing representation and services to members who are professionals.
In addition to providing membership services generally to members, the association also offers the ability to obtain professional indemnity insurance through an insurance broker under an insurance program.
The association entered into an agreement with the insurance broker under which the association will supply information to members about the insurance broker and refer them as prospective insured.
The association is not a registered insurance broker and does not hold an Australian Financial Services Licence (AFSL).
Under the program, the insurance broker supplies insurance under a group policy underwritten by an insurer. While the master policy is in the name of the association, it provides covers to members who opted to participate in the program. Accordingly, each participating members receive a Certificate of Currency.
The association does not have any liability to the members under the policy.
The association receives one invoice from the insurer for the total cost of the insurance premium which is based linearly on the number of participating members.
The association pays the total premium for the members and collect their respective amounts of premium by including them in their annual membership renewal invoice as a separate item.
Where a member does not pay the premium, the insurance is cancelled and an adjustment is made to the insurance invoice issued to the association.
The association does not add any margin to the insurance premium, collecting only the cost of the insurance from the members.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 78-5
Reasons for decision
Subsection 78-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the value of a taxable supply of an insurance policy is worked out as if the price of the supply were reduced by the amount of any stamp duty payable under a State law or Territory law in respect of the supply. This means that the stamp duty included in the insurance premium is not subject to GST.
Where an entity incurs an expense in the course of making a supply and on-charges the cost to the recipient of the supply, the expense loses its character and the cost becomes part of the consideration for the supply. Accordingly, if the supply is subject to GST, the amount on-charged is also subject to GST.
The association provides services to its members. It also provides information about professional indemnity insurance available through an insurance broker by way of a group insurance program. Where a member participates in the program, the association includes as a separate item in the annual membership renewal invoice the amount of insurance premium payable by the member.
We need to determine whether the association acquires the insurance in the course of supplying membership services and on-charges the cost of the insurance premium to the members. If that is the case, the amount on-charged loses its character as insurance premium including the stamp duty paid on the supply of insurance. The amount on-charged would be consideration for the association’s supply of membership services.
The master policy for the group insurance is in the name of the association; however, each member who participates in the program is given a Certificate of Currency containing the name of the insured member. The Policy Wording indicates that the policy provides cover to the insured member against medical malpractice and public liability. The terms and conditions contained in the Policy Wording relate to the insured member rather than to the association.
Based on the information provided, we consider that the supply of insurance was acquired by the members and not by the organisation. Each member is liable to pay insurance premium which is collected by the organisation through the annual membership renewal form. Effectively, the organisation is merely acting as a paying agent for the insured members. The insurance premium collected from the members is not a cost incurred and on-charged by the organisation; thus, it retains its character as insurance premium. Accordingly, the stamp duty included in the insurance premium is not subject to GST.