Edited version of private advice

Authorisation Number: 1052131256945

Date of advice: 21 June 2024

Ruling

Subject: GST - insurance to non-residents

Issue 1

Question 1

Is the supply by Entity X (Insurer) of an insurance policy (the Policy) GST-free under paragraph (b) of item 4 in the table of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (table item 4(b) where the application for a OSHC Policy is accepted by the Insurer when the Policy Holder is located outside of Australia and is not an Australian resident for tax purposes?

Answer

Yes. Table item 4(b) applies to the Insurers supply of insurance to a non-resident as:

•       the supply made in relation to rights; and

•       the rights are created when the recipient is outside Australia as both the required payment (minimum or full) and acceptance of the application occurs when the recipient is outside Australia.

Issue 2

For the purposes of this private ruling reference to:

•       'original supply' or 'original rights' is a reference to the initial supply of rights by the Insurer to the Policy Holder whilst the Policy Holder is located outside Australia.

Question 2

Does the supply by the Insurer which was initially GST-free in the circumstances under question 1, continue to be GST-free when the Insurer accepts a Policy Holder's application to:

(a)          change the level of cover provided by the policy

(b)          add a new person to, or remove an existing person from, the Policy

(c)          extend the Policy by changing the 'end date' of insurance coverage or renewing the Policy for a new fixed term

(d)          change the 'start date' of insurance coverage of the Policy

(e)          suspend the insurance coverage of the Policy (i.e. suspension / leave of absence) and later re-instates the cover on removal of the suspension

Note: For the purposes of this question the change is requested by the Policy Holder once they are located in Australia.

Answer

If the Policy Holder is located in Australia when the Insurer accepts an application to:

(a)          change the level of cover provided by an the Policy, to the extent that the supply of the original rights by the Insurer continue in the Policy those original rights continue to be GST-free for the period covered by the original agreement. However, to the extent that there are additional rights granted, the Insurer is considered to make a further supply of rights to the Policy Holder and table item 4(b) does not apply to this further supply.

(b)          add a new person to, or remove an existing person from the Policy and there is no change in the original rights, the supply by the Insurer continues to be GST-free. However, to the extent there is additional rights granted (i.e. a new person added), the Insurer is considered to make a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

(c)          change the 'end date' or a renewal of the Policy, the initial length of cover supplied continues to be GST-free. However, to the extent that there is an extension in the length of cover or upon renewal, the Insurer is considered to make a further supply of rights to the Policy Holder. In respect of this further supply table item 4(b) does not apply.

(d)          a change in 'start date' that does not change the initially supplied length of cover, the Insurer continues to make a GST-free supply. However, to the extent that the length of cover is extended there is a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

(e)          allow for a period of suspension, where the originally agreed length of cover is unchanged the Policy continues to be GST-free.

Issue 3

Question 3

Is the Insurer's proposed process reasonable to establish the physical location of the Policy Holder at the time of acceptance of and entry into the Policy?

Answer

Provided that there is no other information or evidence that identifies that the Policy Holder is physically located in the Indirect Tax Zone (Australia), the Insurers proposed process is reasonable to establish the physical location of the Policy Holder at the time of acceptance of and entry into the Policy.

Question 4

Is the Policy Holder a non-resident in circumstances where they are required to purchase the Policy as a pre-condition of entry into Australia?

Answer

Provided there is no other evidence to suggest that the Policy Holder had a place of abode in Australia at the time of application, the Policy Holder will be a non-resident in circumstances where they are required to purchase the Policy as a pre-condition of entry into Australia on a Visa.

This ruling applies for the following period:

From the issue date of this letter till quarter ending DDMMYYYY

Relevant facts and circumstances

Entity X is an insurer that carries on an enterprise in Australia.

This ruling request concerns the GST treatment of Entity X's (Insurers) Policies that are supplied to people not located in Australia.

The Insurer has provided a number of attachments in the ruling request that set out the framework which applies. However generally, the circumstance considered in this private ruling can be summarised as following:

•         The Insurer offers the Policies that are taken out and held by an individual.

•         an individual completes the Insurers application form at which time they provide their personal details and specify:

o        the level of Product cover.

o        the person/s to be covered

o        the period of cover (in months) together with the relevant commencement date.

•         The application is lodged and approved by the Insurer whilst the individual is outside Australia, and the individual (Policy Holder) is required to pay the minimum Premium at the time of application.

•         The Policy will commence once the Policy Holder arrives in Australia.

•         Changes to a Policy may be requested by a Policy Holder either prior to the commencement or during the Policy. This private ruling is limited to dealing with changes made by a Policy Holder once they are located in Australia in the following circumstances:

o        Changes in Product - a Policy Holder may change the Product by shifting to a higher or lower level of cover under a Policy.

o        Adding or removing insured person - a Policy Holder may add or remove a partner or dependant under the Policy.

o        Extension of term / Renewal - a Policy Holder may extend the end date of their Policy or renew their Policy for a further prior to expiration of the original term.

o        Changing the date of commencement of cover - a Policy Holder may change the start date of the Policy if, for example, their date of anticipated entry into Australia has changed pursuant to visa approvals.

o        Suspension of cover - a Policy Holder may suspend their Policy while on a leave of absence from Australia such as on an extended stay back in their home country, and later reinstate their Policy on their return.

Broadly where there is a change:

o        in Product, this will generally give rise to either an additional Premium amount or alternatively a reduction in Premium amount, depending on the relevant pricing for the new Product compared to the existing Product.

o        to add or remove an individual from a Policy will give rise to either an additional Premium amount (i.e., when adding an individual) or alternatively a reduction of the Premium amount (when removing an individual).

o        to the policy end date or a renewal, this will result in a change to the Premium payable. An extension of the length of cover will require the Policy Holder to make further Premium payments to be covered for those additional periods;

o        to the Policy start date, this will not result in a change to the Premium payable so long as the end date is also changed accordingly. However, if a change in the Policy start date results in a change in the duration of the Policy, this will also result in a change in the amount of the Premium payable. For example, if the Policy state date is changed to an earlier date and the end date is not brought forward accordingly, the duration of the Policy will be extended and the Policy Holder will be required to make further Premium payments to be covered for the extended period. Alternatively, if the Policy start date is changed to a later date and the end date is not pushed back accordingly, the duration of the Policy will be reduced, and the Policy Holder may in certain circumstances be entitled to request a partial refund of the paid Premiums referrable to the reduced period.

o        to suspend the Policy, depending on the time period in question, this may result in a partial refund of the paid Premiums referrable to the suspension periods. On resuming the Policy there will be no change to the Premium already paid for the remaining coverage periods (provided the end date of the Policy is not extended).

Process to establish physical location of the Policy Holder

As the recipient of the supply of a Policy will always be the individual Policy Holder, it is relevant to establish where the Policy Holder is at the time the application is accepted.

The Insurer proposes to place a requirement on the applicant to confirm whether the Policy Holder is physically located inside or outside of Australia at the time of making the application. The application is usually approved on the same day.

For the purposes of the questions 1 it is assumed the individual recipients are not Australian residents under section 6(1) of the Income Tax Assessment Act 1936. Question 4 refers to whether the Insurer can assume if the recipient is a non-resident.

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 38-190

Reasons for decision

Question 1

Summary

The supply of the Policy satisfies the requirements of table item 4(b).

Detailed Reasoning

Section 9-5 of the GST Act sets out the requirements of a taxable supply, including that the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The meaning of a supply is set out in section 9-10 of the GST Act and provides at paragraph 9-10(2)(e) that a supply includes a creation, grant, transfer, assignment or surrender of any right.

In this case the Insurer supplies insurance policies to individuals. These policies are considered to satisfy the requirements of a taxable supply where they are not covered by a GST-free provision.

Section 38-190 of the GST Act provides that in certain circumstance the supplies of things, other than goods or real property, for consumption outside the indirect tax zone (Australia) are GST-free.

The Insurer submits the supply of the policies to a policy holder are GST-free under table item 4(b). This provision states:

Supplies of things, other than goods or real property, for consumption outside Australia ...

Table 1:Supply of things, other than goods or real property for consumption outside Australia

Note that *asterisk denotes a defined term in section 195-1 of the GST Act

Table item 4(b) will be satisfied if the supply is:

•          made in relation to rights

•          the recipient is a not an Australian resident under section 6(1) of the Income Tax Assessment Act 1936; and

•          the recipient is outside Australia when the thing supplied is done

For the purposes of the question 1 it is assumed the individual recipients are not Australian residents under section 6(1) of the Income Tax Assessment Act 1936. Question 4 refers to whether the Insurer can assume if the recipient is a non-resident.

The supply of insurance is a supply in relations to rights. Goods and Services Tax Ruling GSTR 2003/8 Goods and Services Tax: supply of rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2) (GSTR 2003/8) states at paragraph 95:

Insurance

95. 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.

Once the Insurer has accepted the application, and the Policy Holder has made the required minimum or full payment of the Premium, the contract of insurance has been entered into. Consistent with paragraph 95 in GSTR 2003/8 the thing that is done is the creation of the right to be indemnified, that there is a supply by way of creation of this right when the contract of insurance is entered into, and that the creation of the right is done in Australia if the insurance contract is executed in Australia.

The Commissioner accepts that the supply of the Policy by the Insurer is made to the non-resident who is not in the indirect tax zone when the thing supplied is done. Further it is accepted that the supply of insurance is a supply that is made in relation to rights for the purposes of table item 4(b). Consequently, the supply of the Policy is not subject to GST.

Question 2

Summary

If the Policy Holder is located in Australia when the Insurer accepts:

•          for question 2(a), a change in Product, to the extent that the supply of the original rights by the Insurer continue in the alternative Product those original rights continue to be GST-free for the period covered by the original agreement. However, to the extent that there are additional rights granted, the Insurer is considered to make a further supply of rights to the Policy Holder and table item 4(b) does not apply to this further supply.

•          for question 2(b), an application to add a new person to, or remove an existing person from a Policy and there is no change in the original rights, the supply by the Insurer continues to be GST-free. However, to the extent there is additional rights granted (i.e.. a new person added), the Insurer is considered to make a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

•          for question 2(c), a change in 'end date' or a renewal of the Policy, the initial length of cover supplied continues to be GST-free. However, to the extent that there is an extension in the length of cover or upon renewal, The Insurer is considered to make a further supply of rights to the Policy Holder. In respect of this further supply table item 4(b) does not apply.

•          for question 2(d), a change in 'start date' that does not change the initially supplied length of cover, the Insurer continues to make a GST-free supply. However, to the extent that the length of cover is extended there is a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

•          for question 2(e), a period of suspension, where the originally agreed length of cover is unchanged the Policy continues to be GST-free.

Detailed reasoning

Whether the payment made in respect of a change listed in question 2 is a new supply will depend on the arrangement originally executed. Where a conclusion is reached that an event gives rise to a new and further supply, then paragraph (b) of item 4 in the table of subsection 38-190(1) of the GST Act can no longer apply as the Policy Holder is subsequently located in Australia.

For the purposes of this reasoning reference to the 'original supply' or 'original rights' is a reference to the initial supply (of rights) by the Insurer to the Policy Holder whilst the Policy Holder is located outside Australia.

Character of the rights in the policy

As explained above under the terms of the Policy, the Policy Holder obtains a chose in action, where the Insurer agrees to cover (the cost to allowed limits) of an insured person as set out in the Product Schedule. The Premium represents the consideration for this supply.

In determining what rights were originally acquired attention must be given to the language used in the particular documents and arrangement entered into by the parties, the commercial circumstances and thing that is intended to be secured by entry into the agreements. In this context it is considered that the right must be defined together with the particular matters which include:

•          what is and is not covered;

•          who is or is not covered by the policy;

•          the period during which the cover is provided;

•          any other relevant documents which establish what rights are being supplied

The above characterisation is consistent with the discussion in Goods and Services Tax Ruling 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events (GSTR 2000/19) which explains the Commissioner's view on the operation of Division 19 of the GST Act. Relevantly at paragraph 51 in GSTR 2000/19 it states:

Endorsements to existing insurance policies

51. Insurance policies may be endorsed to increase existing cover for an insured. An example of this is where an insured seeks extra cover under a home contents insurance policy for a new addition to the house or contents. The premium may be increased as a result of the extra cover. The increase in the premium is not an adjustment event, it is consideration for further supply. The further supply is the provision of the extra cover.

The view in GSTR 2000/19 does not explain what is meant by the supply of 'extra cover', however it is reasonable to conclude that the 'extra cover' is referencing new rights that are created and supplied for the new addition or contents. Therefore, these new rights are being added to something (i.e., additional property) that is not covered by the existing policy. In creating such a supply, it is treating the further supply as separate to the existing cover. However, the scope of the above paragraph does not identify when such rights are to be viewed as a mixed or composite supply, nor does it contemplate every scenario that can give rise to a new/further supply.

In Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) at paragraph 47 it states:

47. The definition of a taxable supply requires, among other things, that you make a supply for consideration. There needs to be a supply, a payment and the necessary relationship between the supply and the payment. Where one party makes a monetary payment to another, something of economic value is provided. The question is whether there is a sufficient nexus between the supply and the payment as consideration.

The Commissioners view in Goods and Services Tax Ruling GSTR 2006/9 Goods and Services Tax: Supplies (GSTR 2006/9) also considers rights and at paragraph 136 and 137 states:

136. .... As pointed out in GSTR 2003/8:

Rights are created under executory contracts and although the creation of such rights is supported by valuable consideration, the supply may not be characterised as a supply that is made in relation to rights if, for example, those rights contribute to the supply as a whole but cannot be identified as the dominant part of the supply.

137. The grant of a right or entry into an obligation may be a term or condition of a larger transaction. Where the grant of the right or entry into the binding obligation is the substance of the transaction it will be the subject matter of a supply.

Further in Goods and Services Tax Ruling GSTR 2008/1 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2008/1) it states:

10. A supply may be characterised as consisting of one or more things or parts. That is, the supply may be regarded as commercially distinct in its own right or it may be regarded as having several identifiable parts.

...

19. Where a transaction comprises a bundle of features and acts, you must consider all of the circumstances of the transaction to ascertain its essential character. You also need to consider the effect the GST Act has on the supply or any of its individual parts. You can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

...

43. A mixed supply contains separately identifiable parts where one or more of the parts is taxable and one or more of the parts is non-taxable. None of these parts is integral, ancillary or incidental in relation to the whole supply. On the other hand, a composite supply is a supply of one dominant part that has other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply.

44. In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts.

Paragraph 59 of GSTR 2001/8 states:

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, indicators that a part may be integral, ancillary or incidental include where:

•          you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

•          it represents a marginal proportion of the total value of the package compared to the dominant part; or

•          it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

•          it contributes to the proper performance of the contract to supply the dominant part.

That is, we consider that a part of a supply will be integral, ancillary or incidental where it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply. It is a question of fact and degree whether a supply is mixed or composite.

Applying the above principles

Changing Products

In the current arrangements we consider that if the Policy Holder is located in Australia when the Insurer accepts:

•          for question 2(a), a change in Product, to the extent that the supply of the original rights by the Insurer continue in the alternative Product those original rights continue to be GST-free for the period covered by the original agreement. However, to the extent that there are additional rights granted, the Insurer is considered to make a further supply of rights to the Policy Holder and table item 4(b) does not apply to this further supply.

•          for question 2(b), an application to add a new person to, or remove an existing person from a Policy and there is no change in the original rights, the supply by the Insurer continues to be GST-free. However, to the extent there is additional rights granted (i.e.. a new person added), the Insurer is considered to make a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

•          for question 2(c), a change in 'end date' or a renewal of the Policy, the initial length of cover supplied continues to be GST-free. However, to the extent that there is an extension in the length of cover or upon renewal, The Insurer is considered to make a further supply of rights to the Policy Holder. In respect of this further supply table item 4(b) does not apply.

•          for question 2(d), a change in 'start date' that does not change the initially supplied length of cover, the Insurer continues to make a GST-free supply. However, to the extent that the length of cover is extended there is a further supply of rights to the Policy Holder. In respect of the further supply of rights, table item 4(b) does not apply.

•          for question 2(e), a period of suspension, where the originally agreed length of cover is unchanged the Policy continues to be GST-free.

Question 3

Is the Insurer's proposed process reasonable to establish the physical location of the Policy Holder at the time of acceptance of and entry into the Policy?

Summary

Provided that there is no other information or evidence that identifies that the Policy Holder is physically located in the Indirect Tax Zone (Australia), the Insurer's proposed process is reasonable to establish the physical location of the Policy Holder at the time of acceptance of and entry into the Policy.

Detailed reasoning

To satisfy the requirements of table item 4(b) the recipient of the supply of the rights must be outside the indirect tax zone when the thing is done.

GSTR 2004/7 states:

How to determine if a non-resident individual is in Australia for the purposes of item 2 and paragraph (b) of item 4

202. In the case of supplies made to an individual, we consider that the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done.

...

444. If there is a supply that is made in relation to rights to which paragraph (b) of item 4 applies, apportionment is only necessary if there is an application of subsection 38-190(2) to negate, in part, the GST-free status of the supply under paragraph (b) of item 4. This is because the supply occurs when the right is created, granted, assigned, transferred or surrendered.^[97] The recipient of the supply is either in Australia in relation to the supply or not in Australia in relation to the supply when the thing supplied is done, that is when the right is created, granted, assigned, transferred or surrendered. However, if subsection 38-190(2) applies because the supply is a right or option to acquire something the supply of which would be connected with Australia and would be GST-free in part only, the supply of the right is only partly GST-free and apportionment is required.

GSTR 2004/7 does not specify any particular method or process which a supplier can adopt to support their conclusion that the individual is not in Australia for the purposes of applying table item 4(b). However, any method the Insurer chooses needs to be fair and reasonable in the circumstances of the relevant supply.

In this case the Policy rights will be granted to an individual outside the indirect tax zone. To identify that the supply is made whilst the individual is outside Australia, the Insurer proposes to place a requirement on the applicant to confirm whether the Policy Holder is physically located inside or outside of Australia at the time of making the application. As the application is usually approved on the same day it is made, this is evidence for confirming the Policy Holder's location at the time of entering the Policy.

Provided that there is no other information or evidence that identifies that the Policy Holder is physically located in the Indirect Tax Zone (Australia), the Insurer's proposed process is reasonable to establish the physical location of the Policy Holder at the time of acceptance of and entry into the Policy.

Question 4

Is the Policy Holder a non-resident in circumstances where they are required to purchase the Policy as a pre-condition of entry into Australia on a Visa?

Summary

Provided there is no other evidence to suggest that the Policy Holder had a place of abode in Australia at the time of application, the Policy Holder will be a non-resident in circumstances where they are required to purchase the Policy as a pre-condition of entry into Australia on a Visa.

Detailed reasoning

For table item 4(b) to apply the supply must be to an entity that is not an Australian resident. The term Australian resident is defined in section 195-1 of the GST Act which states:

Australian resident means a person who is a resident of Australia for the purposes of the *ITAA1936.

The Income Tax Assessment Act 1936 (ITAA 1936) provides the meaning of resident of Australia which is further discussed in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals (TR 2023/1). Relevantly paragraph 61 states:

61. Obtaining a visa to migrate to a particular country would be consistent with an intention to make your home indefinitely in that country. A working visa, even for a substantial period of time, would usually not be sufficient evidence of an intention to acquire a new domicile of choice.

It follows that, provided there is no other evidence to suggest that the Policy Holder had a place of abode in Australia at the time of application, the Policy Holder will be a non-resident in circumstances where they are required to purchase the Policy as a pre-condition of entry into Australia on a Visa.