Private ruling: Insurance premium and withholding
Published: April 2014
Ruling period: Year ended 30 June 2013, | Year ended 30 June 2014, | Year ended 30 June 2015.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Do you have to withhold on an insurance premium, paid to an overseas insurer? | A1: Yes | Q2: Does the gross amount of the premium including amounts for stamp duties and other charges paid to the overseas insurer form part of the assessable income of an insurer and subject to withholding? | A2: Yes | Q3: Does the GST component of the premium, paid to the overseas insurer form part of the assessable income of an insurer and subject to withholding? | A3: No

Relevant facts and circumstances: You sell an insurance policy i.e. a liability product. You are the agent on behalf of a foreign insurer. The risks are written overseas by this underwriter. You have been deducting 3% Income Tax from the premium before remitting funds to the insurer. (10% of the premium income, multiplied by 30%). The tax is paid to the ATO on the insurers behalf by you. You complete an AAF return for the 3% withholding tax and pay ATO. The premiums include: • The base underwriter premium, • Your fee income • Broker commissions, • Stamp duty, • Other statutory charges, and • GST.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 142 | Income Tax Assessment Act 1936 Section 143 | Income Tax Assessment Act 1997 Section 17-5

Reasons for decision: Summary: You are required to withhold on an insurance premium, paid to an overseas insurer and the amount of withholding is calculated on the gross amount including stamp duties, and other charges excepting GST, paid to the overseas insurer. | Detailed Reasoning - Detailed reasoning: Subsection 142(2) of the Income Tax Assessment Act 1936 (ITAA 1936) includes certain premiums that are paid or payable to an agent of a non-resident insurer in the assessable income of the insurer as Australian sourced income. This indirectly implies that an amount which is not considered an amount of "assessable income" would logically be excluded from this calculation under subsection 142(2) of the ITAA 1936. As GST is an amount statutorily excluded from assessable income by section 17-5 of the Income Tax Assessment Act 1997 (ITAA 1997), it will not be included in the taxable income of an insurer under section 143 of the ITAA 1936 (see also ATO ID 2010/89: Income Tax Whether non-resident royalty withholding tax is based on the GST inclusive or GST exclusive amount paid in respect of royalties ). The taxable income amount as per section 143 of the ITAA 1936 of the insurer is equal to 10% of the total amount of premiums derived. The term 'Premium' has not been defined for the purposes of income tax legislation and as such takes its ordinary meaning. ATO ID 2013/59 considers what constitutes an insurance 'premium': "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." The ATO ID 2013/59 highlights the Royal and Sun Case which has considered amounts included in the ordinary meaning of a 'premium', for example: • GST • Stamp duty • Fire services levy An insurance premium for income tax purposes includes every amount paid by the insured to the insurer for the insurance cover. It is not relevant whether the amount payable has been divided into a number of parts in the insurance policy. Thus, the premium will include amounts which are used to pay expenses such as stamp duty and GST on behalf of the overseas insurer. However, as previously discussed amounts of GST are later excluded by way of a statutory section as non assessable non exempt income under section 17-5 of the ITAA 1997. In conclusion, if GST is paid by a non-resident insurer, then the amount assessable under Division 15 does not include the GST paid on the premium. The gross premium paid by your insured clients for their insurance cover to you (whether collected by you on behalf of your underwriter or otherwise), will form part of the assessable income, excluding any GST paid by the insurer, and will be subject to withholding to be collected and declared by you as per section 143 of the ITAA 1936.