Private ruling: GST and general law agency/insurance
Published: December 2014

Ruling: Q1: In making the claim (on behalf of your client) against the liable party's insurer for the repair costs of your client's car, should your invoice be goods and services tax (GST) inclusive? | A1: No. You cannot issue a *tax invoice. (* see definition of tax invoice in Reasons for decision below) | Q2: Should the third party liable insurer pay you the repairs and hire car costs with the GST In full when the client is not registered for GST? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. • You are a company registered for GST. • You provide a rental vehicle to the not-at-fault driver (the client) following a motor vehicle accident. • You also arrange for the repair of the car with a repairer. • The repairer will repair the vehicle under instruction from an independent assessor. • The client has a claim against the at-fault-driver (liable party) for the repair costs. The liable party's insurance company will settle the claim. • You enter into two agreements with the client: • Contract of Indemnity for car rental/repair and • Authority to Act. Authority to Act Letter • The client appoints you to act as their authorised agent to manage and handle all matters pertaining to the accident, for administrative costs, repair costs and hire vehicle costs. • The authority allows you to have the rights and ability to deal with the relevant insurer, third parties or its insurer. • The client assigns to you any rights, debts or interest in the claim which is the subject of the authority and permit you to receive all relevant settlement funds in respect thereof and for remittance of such funds to be payable to them in their name. Contract of indemnity Conditions of Indemnity • You indemnify the client for the rental costs in consideration of the client subrogating their rights to you, and to recover the rental costs/repairs from the liable party and written assignment of this debt. • You are subrogated to the rights of the client and the assignment of the debt to recover the rental cost charges and/or repair costs. • The client has by signing this contract, assigned the debt of hire charges, repairs costs, towages, administrative costs or any other legal chose in action over to you as per Property Law Act 1969 - Sect 20. • Whilst the client is liable to pay the hire charges, you will attempt to recover them on the client's behalf by reason of the assignment of the client's right of recovery contained in the Letter of Authority to Act. • Whilst the client is legally liable for the hire charges/repairs, you will not ask for payment from the client whilst the matter is the subject of a claim. If for any reason, you are unable to recover them, you may waive the charges either in full or in part. Assignment • Assignment of the rights of the client and the assignment of debts, to you includes: • You or your agents have the right to commence proceedings in the name of the client. • You or your agents have the right to collect all money recovered on behalf of the client. • You or your agents have the right to keep and apply all monies recovered to the satisfaction of the rental costs. • You or your agents have the right to obtain all information on behalf of the client, necessary to recover the rental costs. • The client (claimant) understands the rental vehicle is not free of charge and the client is liable to pay the rental costs/repairs, unless you recover such costs in full. • The repairer will invoice you and you will in turn make a claim against the liable party's insurer to recover your client's car repair costs. • When you receive the funds from the insurance company you will pay the repair invoices which include GST. • You also claim the input tax credits on the acquisition of the repair services.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Division 9 | Division 11 | Division 78 | Subdivision 153-A

Reasons for decision: Summary: When invoicing the liable party's insurer for the repair costs of your client's car, your client has assigned the rights to you to collect the claim amount (car repair costs) from the liable party's insurer, your invoice should be for the total amount of the car repair costs but not distinguishing the GST amount. | Detailed Reasoning - Detailed reasoning: Following the grant of the authority, you arrange car repairs for the client and recover the car repair costs from the liable party's insurer. You act within your authority to obtain the car repair for your client. Goods and Services Tax Ruling GSTR 2000/37 describes what is meant by principal/agent relationships ('agency relationships') and explains the operation of the general law agency. Under the authority, you do not act in your own name. Although you have entered into repair contract with a repairer (on behalf of the client) and you receive the tax invoice (in your name) from the repairer, it is the view of the Tax Office in paragraph 29 of GSTR 2000/37 that: In some situations, these factors may be difficult to establish. For example, situations may arise where: - the existence of a principal is disclosed but not named; or - the existence of a principal is not disclosed to third parties. However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship. In your case you cannot determine the costs of the repair. You cannot set the price as a supplier in your own right. You do not make the repair supply in order to decide the price. You do not bear any commercial risk in relation to the repair of the client's car. You will recover the repair costs against the liable insurer under the assignment of the client's right to you. Otherwise, the client is liable for the repair costs [see the Contract of Indemnity]. Your role is to act as an agent for the client. Therefore, it is considered that you are the client's general law agent, and do not act in your own right in relation to the repair of the car. As a general law agent you arrange for the repair of your client's car. The repairer provides repair services to your client through you. The supply of repair services is not made to you . | Detailed Reasoning - GST payable under agency relationships: Under Subdivision 153-A of the A New Tax System (Goods and Services Tax) 1999 (GST Act), when an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent. If you are an agent at general law, you are an agent for GST purposes. Accordingly, if you are an agent (where taxable supplies are made through you), the principal is liable for any GST payable on the supplies. Subsection 78-65(1) of the GST Act provides: (1) The making of any payment by an insurer to an entity is not treated as *consideration for a supply to the insurer by the entity, to the extent that: (a) the payment is made in settlement of a claim under an *insurance policy under which the entity is not insured; and (b) the payment is to discharge a liability owed to that entity by the entity insured. The payment made by the liable party's insurer is not treated as consideration for a supply to the insurer by your client as the payment is made in settlement of a claim under an insurance policy and the payment is to discharge a liability owed to your client by the liable party. Under the agreements with you, the client assigns you the right to receive the settlement amount from the liable party's insurer that they are liable to pay to the client. Generally, the insurer will only compensate the insured and/or third party in respect of actual loss incurred. For example, if there were repairs to be made for the GST inclusive cost of $5500 and the insured and/or third party is registered for GST, and entitled to claim 100% input tax credits, we understand that the assumption is that when the insured and/or third party pays for the repairs, they would be entitled to claim the 100% input tax credits. The payment by the insured and/or third party to the repairer is consideration for a taxable supply. Therefore 1/11 th of the payment from the insured and/or third party to the repairer is GST. The insured and/or third party would claim an input tax credit of $500, which is 100% of the GST of $500 from the ATO. Therefore, we understand that the insurer would take that into account, and pay the insured and/or third party the amount of $5,000. However, please note that the amount of the payout depends on the insurance policy and is a matter between the insured and the insurer. Section 29-70 of the GST Act specifies the requirement for a valid tax invoice. A tax invoice must be in the approved form. A document will be in the approved form for a tax invoice if it includes the information required by the GST Act. Subsection 29-70(1) of the GST Act states: A tax invoice is a document that complies with the following requirements: (a) it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient); (b) … As discussed above you are not the supplier of the repair services to your client and you are not making any supplies to the Insurance company. Therefore you are unable at GST law to provide a tax invoice to the Insurance company. The Commissioner has expressed his view about the way the law applies on tax invoices in Goods and Services Tax Ruling GSTR 2013/1 (GSTR 2013/1). Paragraph 67 states: An invoice is a document notifying an obligation to make a payment, whereas a tax invoice is a document that contains the information about a taxable supply required by the GST Act. This information may not always appear on an invoice. In your case you have not made a supply to the Insurance company in respect of the repair of the car, you are issuing an invoice, a notification to the Insurance company to make a payment, to you rather than to the insured as required under the Consignment. We provide an example below to assist in your circumstances. This example assumes that your client is not registered for GST and is therefore not entitled to an input tax credit. As discussed above the amount that the Insurance company is liable to pay would depend on whether the insured and/or third party is registered for GST, and entitled to claim 100% input tax credits. Example 1 (not registered for GST) Invoice Repair costs $5,500 Total Amount Payable (to you) $5,500 You would normally attach a copy of the Car Repairer's tax invoice to your invoice. Example 2 (registered for GST) Invoice Repair costs $5,500 Less GST $500** Total Amount Payable $5,000*** **your client claims this amount as an input tax credit (ITC) ***you need to recover $500 from your client who is entitled to a full ITC Where the insured is entitled to a full ITC, the insured only receives a GST exclusive amount. As the insurer is not entitled to any deceasing adjustment, the net outcome to the insurer is the same. According to the Tax Office Fact Sheet titled Insurance Settlement Amounts the rationale for doing this would appear to be that the insurer considers they are only required to indemnify the insured for the actual loss incurred. If the insured is entitled to claim a full input tax credit on the replacement item, the insurer may consider that the entity's loss is less than it would have been if they could not claim an ITC. Therefore, when an insurer pays out a cash settlement on a claim, it is common practice for the insurer to reduce the settlement amount by 1/11 th where the insured is entitled to a full GST credit on a replacement item. | Summary: The amount is the amount that the liable insurer/third parties are liable to pay under the relevant insurance policy to the insured and is dependent on whether the liable insurer/third parties are registered for GST. | Detailed Reasoning - Detailed reasoning: We have discussed the issue of the receipt of the car repair amounts in Question 1 and the inability for you to issue a tax invoice as you are not making supplies. However, in relation to the provision of the hire car to the client, you are the supplier of the hire car in your own right. The Client is liable to pay you the rental costs. As you are registered for GST, the supply of the hire is for consideration and is in the course of an enterprise you carry on in Australia then you are making a taxable supply and GST applies. As the supplier of the hire car to the client, you act as the supplier (the principal rather than an agent) you need to include GST in the tax invoice to the client for your taxable supply of care hire because it is a taxable supply under the GST Act In brief, in relation to the hire car there are 2 separate transactions: 1. You act as a supplier of car hire. You are liable for the GST on the car hire as the supplier. 2. You act as an agent to receive the payment of the car hire from the liable insurer/third parties ***. As a receiving agent for a client who is not registered for GST, there is no GST implications (GST payable, input tax credit) on the receipt of the payment to you. You will receive the full amount of settlement amount (in respect of the car rental cost that the insurer is liable to pay the client). (***see reasoning in Question 1). Once again, when seeking to recover the hire car amount from the insurance company your invoice should follow Example 1 above. You do not issue a 'Tax Invoice' for the amount to the insurance company but merely provide a normal Invoice