Private ruling: Reinsurance with non-residents
Date of advice: 22 August 2025
Published: 27 October 2025
Ruling period: XXX to XXX
Date scheme commenced: XXX to XXX

Ruling: Q1: Under the reinsurance agreement, is the gross amounts of the premiums paid or credited as referred to in subsection 148(3) of the Income Tax Assessment Act 1936 (ITAA 1936), the Reinsurance Premium Payable as defined in the reinsurance agreement? | A1: Yes

Relevant facts and circumstances: An Australian insurer enters into a reinsurance agreement with a non-resident reinsurer. Under the reinsurance agreement, the insurer will cede a 100% proportionate share of all business to the reinsurer in relation to all the policies it underwrites to Australian customers. As consideration, the insurer will be required to pay the Reinsurance Premium Payable to the reinsurer to secure the grant of reinsurance cover provided under the reinsurance agreement.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 148(1) | Income Tax Assessment Act 1936 Subsection 148(2) | Income Tax Assessment Act 1936 Subsection 148(3)

Reasons for decision: Summary: All legislative references are to the ITAA 1936 unless otherwise specified. The phrase 'gross amounts of the premiums paid or credited' or its composite terms, as used in subsection 148(3)) is not defined in the Income Tax Acts and therefore takes its ordinary meaning subject to the text and context in which it appears. 'Premium' in the context of insurance law has been defined as 'a sum of money paid by an assured to an insurer in consideration of his indemnifying the insured for loss sustained in consequence of the risk insured against'. [1] A similar meaning was endorsed by the Victorian Supreme Court in Commissioner of State Revenue (Vic) v Royal and Sun Alliance Insurance Ltd [2] (the Sun Alliance case), where the Court held at [27] that the term bore its ordinary meaning, which was: ... the consideration, usually in the form of a monetary obligation, paid or payable by the insured for the grant or renewal of insurance cover or of other rights under a policy of insurance. Further, the Court in the Sun Alliance case, in considering the meaning of the term 'gross premiums', held at [55]: In the absence of any reliable indication in the statute or elsewhere as to the meaning of "gross premiums", one should accept, as the learned judge did, that the expression bore its natural meaning. In other words it was intended to denote the total of all sums received by way of premium, however so described, in consideration of the granting or renewal of insurance cover. The views expressed in case law that the term 'premium' carries its ordinary meaning and denotes the total amount of consideration required to be paid to secure the granting of insurance cover, have been endorsed by the Commissioner, including in ATO Interpretative Decision 2013/59 Income derived by non-resident insurer (ATO ID 2013/59). Here the Commissioner expresses the view: An insured party pays a premium to the insurer in exchange for the insurer's assumption of the insured's risk upon the happening of some event ( Prudential Insurance Co v. Inland Revenue Commissioners [1904] 2 KB 658 at 663). The composition of the premium amount is determined by the insurer and is a reflection of the selling price of the insurance. Additionally, though a premium may have numerous components, it is the total amount of the consideration the insured is required to pay to secure the grant or renewal of the insurance cover. That is, the premium is a required payment for an insurance policy to have effect. Therefore, for the purposes of applying subsection 148(3), the phrase 'gross amounts of the premiums paid or credited' should be interpreted to take its ordinary meaning and as referring to the total amount of consideration required to be paid in order to bind the contract of reinsurance. In the present case, the reinsurance agreement provides that the Reinsurance Premium Payable is the amount required to be paid to bind the contract of reinsurance. Therefore, the Reinsurance Premium Payable represents the 'gross amounts of premiums paid or credited' under subsection 148(3). [1] Swain v Law Society [1982] 2 All ER 827. [2] VSCA 177; (2003) 54 ATR 339; 2003 ATC 4998.