Edited version of private advice

Authorisation Number: 5010103466993

Date of advice: 3 September 2024

Ruling

Subject: GST and international

Question 1

Are supplies made by you to an insured owner (acting as principal under the contract), in relation to repairs of their Australian property, a taxable supplyunder section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where consideration for the supply is paid by a non-resident insurer acting as the insured's agent?

Answer

Yes, the supplies made by you to an insured owner in relation to repairs of their Australian property constitutes a taxable supply under section 9-5 of the GST Act.

Question 2

Are excess payments (paid directly by insured parties) part of the consideration for a taxable supply under section 9-5 of the GST Actmade by you to the insured (as principal) in Question 1?

Answer

Yes, the excess payments form part of the consideration of payment for a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following period:

1 July 20xx to 02 September 20xx

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

1.    You are an Australian-resident company, carrying on an enterprise in Australia.

2.    You are registered for GST effective 1 July 20XX.

3.    You undertake construction work, including repairs to commercial properties and large-scale residential properties. At times the cost of this work is covered by insurance policies which are held by the property owners (the insured).

4.    Attached to your ruling application, was a standard format of contract that you currently enter with the insured parties (Contracts).

5.    Under the terms of the Contract, the payment of the work includes the following terms:

•         The insured owner will be the principal. They will pay a deposit amount which is equivalent to the insurance policy 'excess' before work can commence.

•         The principal appoints the insurer as 'agent' for the insured party in relation to the administration of the contract, excluding the payment of the excess.

•         The excess amount is payable by the insured to you within two business days of the contract as a deposit. Repair work does not commence until this payment is made.

6.    You collect payment of the remaining contract amount via progress claims submitted to the insurer. GST is charged by you on any invoices issued to the insured parties under these contracts.

7.    The insured parties are insured by both non-resident and Australian-based insurance companies. Some non-resident insurers may not be registered (or required to be registered) for GST in Australia.

8.    The insured entities may be Australian businesses, bodies corporate or other entities that own the buildings. Therefore, some may be registered for GST, whilst others may not be registered or required to be registered.

9.    All work performed by you under the terms of the contract is performed in Australia and on real property (buildings) located in Australia.

10.  Your tax representative advised us that you have currently paused the redesign of your future proposed contracts. Therefore, the ruling would be based on your current arrangement with its customers.

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

Detailed reasoning

Question 1

You are liable to pay GST on any taxable supply you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply:

(a) if you make the supply for consideration; and

(b) the supply is made in the course or furtherance of your enterprise that you carry on; and

(c) the supply is connected with the indirect tax zone (Australia); and

(d) you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, you are engaged by the insured party (acting as principal) to provide repair works to their Australian property. The Contract dictates the non-resident insurers (as the insured's agent) must make payment to you for the services.

Hence, you satisfy all of the requirements of section 9-5 of the GST Act and the supply of repair works is not an input taxed supply. Therefore, it should be determined whether the supply of the services when paid by a non-resident insurer will be GST-free under the GST Act.

GST-free supply

Section 38-190 of the GST Act provides circumstances under which supplies of things other than goods or real property for consumption outside Australia will be GST-free.

Table item 2 of subsection 38-190(1) of the GST Act provides that a supply of anything other than goods or real property is GST-free when made to a non-resident who is not in Australia in relation to the supply when the thing supplied is done if:

a) the supply of the thing is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia; or

b) the non-resident acquires the thing in carrying on their enterprise but is not registered or required to be registered for GST.

The very first requirement for a supply to be GST-free under table item 2 of subsection 38-190(1) of the GST Act is that the supply is made to a non-resident who is not in Australia when the thing supplied is done.

In this instance, you engaged by the Insured party (acting as principal) with the insurer appointed as an agent. The insured party is an Australian resident.

As the supply is made is to the insured owners who are Australian residents, the requirements above are not satisfied. The supply is not made to a non-resident. Therefore, the supply of repair works is not GST-free and is considered to be a taxable supply.

Question 2

Following from the above, a taxable supply is made by you to an Australian entity when you supply repair works.

Paragraphs 107-108 GSTR 2006/10 Goods and services tax: insurance settlements and entitlement to input tax credits refers to excess payments where the excess is paid directly to the repairer. It states:

Excess paid directly to repairer

107. If, on the other hand, the insured is liable under the policy to pay the excess to the repairer, and the repairer is not acting as agent of the insurer, the excess will be consideration for the supply the repairer is making to the insured. This is consistent with the UK Court of Appeal decision in Brown & Davis Ltd v. Galbraith where it was held that, although the primary contract was between the insurance company and the repairer for a supply of repair services, there was a second contract between the insured and the repairer requiring the insured to pay for the repairs only to the extent of the excess under the policy.

108. The payment of the excess by the insured is consideration for the supply of repair services to the value of the excess by the repairer. The insured, if registered for GST, may be entitled to an input tax credit. In this circumstance, the repairer will be required to provide a tax invoice in respect of the services made to the insured if requested. 109. The insurer is entitled to an input tax credit for the GST payable to the extent that the insurer pays, or is liable to pay, for the supply of the repairs made to it

Consistent with the view above and as per the contract provided, all payments are made to you and it is referenced to as a "Deposit". As there is only one supply, the excess payment forms part of the consideration.