GST FACT SHEET

This information is designed to give you an understanding of how GST works and how it may impact your premium.

Introduction

Federal Parliament has passed the Goods and Services Tax (GST) legislation and other associated tax reforms. These reforms are now law.

Under the Act, GST is not applicable to life insurance or health insurance policies. At this stage the treatment of a life component in a general insurance policy is not clear. If your policy has a life component, the effect of the tax changes has been assessed on the post 1 July 2000 component of the general insurance component only. The clause provides for a right to collect GST on the life component should the legislation allow.

Input Tax Credits for Business Clients

Division 78 (A New tax System (Goods and Services Act) 1999) provides for a registered business to claim Input Tax Credits for GST paid on an insurance premium. If a registered insured, having claimed the Input Tax Credit on the premium then has a claim, the insured will be liable to pay GST on the settlement.

Under transitional arrangements (Section 23 A New Tax System (Goods and Services Tax Transition) Act 1999), businesses are not entitled to claim Input Tax Credits on an insurance policy before 1 July 2003, unless they notify the tax Commissioner that they are claiming a tax credit.

Between 1/7/2000 and 1/7/2003, registered businesses have two options.

Option 1 - claiming an input tax credit

XYZ is registered for GST purposes. It pays its insurance premium for the period 1/12/1999 to 1/12/2000 in the sum of $1050, which includes $50 GST (the GST applies on that part of the premium from 1/7/2000 to 1/12/2000). XYZ decides to claim an input tax credit for the $50.

An event leading to a claim occurs on 6 July 2000. A settlement is made some time thereafter in the sum of $110,000 to a third party. XYZ is then required to pay $10,000 GST on the settlement because it claimed the input tax credit on the premium. The third party does not pay any GST on the settlement.

Option 2 - not claiming an input tax credit

XYZ is registered. It pays its insurance premium for the period 1/12/1999 to 1/12/2000 in the sum of $1050, which includes $50 GST (the GST applies on that part of the premium from 1/7/2000 to 1/12/2000). XYZ does not claim an input tax credit for the $50.

An event leading to a claim occurs on 6 July 2000. A settlement is made some time thereafter in the sum of $110,000 to a third party. XYZ does not have to pay any GST on the settlement, as it did not claim an input tax credit on the premium. The third party does not pay any GST on the settlement.

If a registered insured does not claim an input tax credit on the premium paid and subsequently has a claim, the insured will not have to pay any GST on the settlement

Any business that will be registering for an Australian Business Number (ABN) with the Australian Taxation Office (ATO) should seek professional advice before claiming an Input Tax Credit (ITC) for the GST paid on an insurance premium.

Should I change the sum insured?

You should consider whether the GST will impact any potential liability, loss or damage that you, your business or property may incur as a result of the tax changes.

How has GST been calculated?

GST is payable at a rate of 10% on that part of the premium covering the period from 1 July 2000.

The GST has been calculated on the premium, Fire Services Levy and other charges. It has not been calculated on any Stamp Duty, which may be applicable to your policy. Stamp Duty is a state government tax.

GST Calculation Example

Renewal Date:	31/03/2000
Number of post 1/7/00 policy days:	273
Premium:	$10,000.00
Fire Services Levy Rate:	0.390
Stamp Duty Rate:	0.115
Extra charges and loadings:	$        0.00

Premium Calculation:

Premium:	$10,000.00
Fire Services Levy	$  3,900.00
Extra charges and loadings	$        0.00
Annualised premium subject to GST	$13,900.00
Pro-rata GST: 273/365 x 13,900 x .10	$ 1,039.64
Stamp Duty ($10,000 + $3,900 + 0 + $1,039.64) x 0.115	$  1,718.06
Charges / Loadings	$        0.00
Total Amount Due	$16,657.70

Details shown on renewal notice:

Total Premium:	$10,000.00
Total Fire Services Levy	$ 3,900.00
Total Stamp Duty	$ 1,718.06
Total GST	$ 1,039.64
Total Amount Due	$16,657.70

My premium is paid by instalments. When will you be invoicing me for the GST amount?

GST will only be included on those installment premiums covering the period after 1 July 2000. Please refer to your installment schedule.

If you pay by instalments, the GST will be included on a pro-rata basis to any premium instalments covering the period from 1 July 2000.

Why are insurers charging GST before 1 July 2000?

Insurers are permitted to collect GST because the liability covered under your policy extends beyond 1 July 2000.

You are required to pay the GST as part of the total premium when it falls due.

In determining the premium rate your insurer has taken into consideration any costs and savings resulting from the introduction of the GST together with interest on the GST amount paid prior to 1 July 2000.

Why are some of the taxes subject to GST? Wasn't the GST supposed to eliminate other taxes?

In some states, state taxes such as the Fire Services Levy are regarded as part of the insurance premium. Under these circumstances, GST is payable on the levy.

How can I be sure that insurers are not using the GST to raise premiums?

The Federal Government has given the Australian Competition and Consumer Commission (ACCC) significant powers to ensure that businesses do not profiteer from the GST.

The major factor impacting the potential costs and savings is the cost of claims for incidents, which occur after 1 July 2000. Claims costs covering items subject to wholesale sales taxes will decline. Alternatively, other costs such as legal expenses and common law claims are likely to rise. The savings and increases in claims costs are used in determining the premium rate.

When can my business begin claiming input tax credits and what records will I need to keep?

A registered business will be able to claim Input Tax Credits from the first reporting period after 1 July 2000. You will need a copy of the Tax Invoice from your insurer to support your claim.

Businesses are required to be registered under the Act, if annual turnover is greater than $50,000 (except nonprofit organisations where the threshold is $100,000).

The Government is introducing a three-year moratorium period for businesses with respect to businesses claiming input tax credits. During this period you will need to advise the ATO if you wish to claim an input tax credit for the GST paid as part of your premium.

Disclaimer
The information contained in this Fact Sheet is intended only to provide a summary and general overview on matters of interest. The information is not intended to be comprehensive nor does it constitute legal or taxation advice. Before acting on any of the information contained in this Fact Sheet, you should seek legal or other professional advice.
There is no representation, warranty or undertaking, express or implied, as to, or acceptance of any responsibility or liability for, the validity, accuracy, or completeness of, or any errors in or omissions from, any information in this Fact Sheet.
No party. nor any of its agents, employees or advisors will be liable in any way, whether directly or indirectly, to any person or body for any loss or damages, costs or expenses whatever arising, out of or in connection with any information contained in this Fact Sheet, including by reason of the information being inaccurate or incomplete in any way or the reliance by any person or body on the information or this Fact Sheet.
This Fact Sheet has been prepared from information available at 25 August 1999. We reserve the right to make any changes for this Fact Sheet or any information in it at any time.