GST issues registers
Insurance industry partnership27 Mutual defence funds
Issue
Various professions, such as the medical and legal professions, have established indemnity funds. In many cases, the funds are not insurance at law. Division 78 does not apply to them. How does GST apply to the funds? How does GST apply to the fees paid by members of the funds into the funds? How does GST apply to compensation payments made by the funds?
Non-interpretative - straight application of the law.
ATO view
Generally, Division 78 will not apply as such funds generally do not supply insurance policies. This does not mean that such funds cannot, or do not supply insurance policies, rather, it is generally the case that they do not. Therefore, the general rules will apply to the fees and to the compensation payments where a mutual defence fund does not supply insurance policies.
If the fund is registered, it could be expected that generally the fees would be subject to GST as the requirements of section 9-5 would be met.
Whether the compensation payment is subject to GST depends on whether the requirements of section 9-5 are met.
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- Is the entity receiving the payment, such as a patient with a claim against a doctor, registered for GST?
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- Is that entity making a supply in exchange for the payment? For example, making a supply of the surrender of any further rights to pursue action against the doctor by signing a release.
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- If there is supply, is it connected with Australia?
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- If there is a supply, is it in the course or furtherance of an enterprise? For example, if the action by the patient is in respect of personal injuries it could be expected that generally there would not be a supply in the course or furtherance of the enterprise as the rights being surrendered are personal. On the other hand, if the action were by a business in relation to negligence by its legal representative, it could be expected that any surrender of the right to pursue further action would be in the course or furtherance of the enterprise.
See also:
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- GSTR 2001/4 - Goods and Services Tax: GST consequences of court orders and out-of-court settlements
Also note that as there may be a supply of an indemnity by the fund if it decides to provide compensation, item 7 of the table in sub regulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 may be applicable.
We are happy to address private ruling request on whether Division 78 would apply to a particular arrangement.
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