Edited version of private advice

Authorisation Number: 1051629200287

Date of advice: 30 January 2020

Ruling

Subject: GST and insurance settlement payments

Question

Are any supplies made by you in settlement of a claim under an insurance policy included in determining your current or projected GST turnover under sections 188-15 and 188-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, any supplies made by you in settlement of a claim under an insurance policy are not included in determining your current or projected GST turnover under sections 188-15 and 188-20 of the GST Act. This is because supplies that are not for consideration are not included in working out your current and projected GST turnover.

Relevant facts and circumstances

You are a non-profit organisation that carries on an enterprise which involves supplying for which you are paid a fee.

You have not currently registered for goods and services tax (GST) nor have you been required to be registered for GST on the basis that your GST turnover has not to date met the GST registration turnover threshold of $150,000.

You have engaged workers to make your supplies of services.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 78-45

A New Tax System (Goods and Services Tax) Act 1999 section 78-100

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

Reasons for decision

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

• you are carrying on an enterprise and
• your GST turnover meets the registration turnover threshold.

Carrying on an enterprise

With regards to the first element of section 23-5 of the GST Act there is no issue that you are carrying on an enterprise. The activities or series of activities undertaken by you in providing services come within the meaning of an enterprise under section 9-20 of the GST Act.

Meeting the GST turnover threshold

With regards to the second element of section 23-5 of the GST Act you will be required to be registered for GST where your GST turnover meets the registration turnover threshold of $150,000 for a non-profit body (section 23-15 of the GST Act).

In Goods and Services Tax Ruling GSTR 2001/7 the Commissioner of Taxation (Commissioner) discusses the meaning of GST turnover and how your GST turnover affects the way the GST Act applies to you. Section 188-10 is relevant for working out whether your GST turnover meets the registration turnover threshold.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold (in this case the registration turnover threshold) if:

• your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or
• your projected GST turnover is at or above the turnover threshold.

Your current GST turnover determined under subsection 188-15(1) of the GST Act and your projected GST turnover determined under subsection 188-20(1) of the GST Act exclude amongst other things, supplies that are not for consideration.

You advised that you have undertaken an objective assessment of your projected GST turnover and current GST turnover having regard to the facts and circumstances which apply to your enterprise at the relevant time.

As both current and projected GST turnover exclude supplies that are not for consideration the issue here is whether the reimbursement payments made to you by the insurer in settlement of a an insurance claim is consideration for a supply made by you.

Are the reimbursement payments consideration?

The term 'consideration' for a supply or acquisition is defined in section 195-1 of the GST Act as any consideration within the meaning given by section 9-15 of the GST Act in connection with the supply or acquisition.

Subsection 9-15(1) of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with, in response to or for the inducement of a supply of anything. In identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a supply for consideration. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Division 78 of the GST Act precludes the payment from the insurer in settlement of a claim under an insurance policy from being the provision of consideration, notwithstanding the broad definition of consideration in section 9-15 of the GST Act.

Division 78 of the GST Act

In particular, subsection 78-45 (1) of the GST Act provides that if, in settlement of a claim under an insurance policy, an insurer makes a payment of money or a payment of digital currency or a supply, the payment or supply is not treated as consideration for a supply made by the entity insured, or by any entity (other than the entity insured) that was entitled to an ITC for the premium paid for the insurance policy.

Section 78-45 of the GST Act has effect despite section 9-15 of the GST Act.

This means that a reimbursement payment made to you by the insurer in settlement of the claim under the insurance policy is not consideration for a supply made by you.

It follows that any supply made by you in settlement of the claim where you receive the reimbursement payments from the insurer is not included in working out your current and projected GST turnover because any supply is not for consideration.