Private ruling: GST - Transfer of Australian Insurance Business
Date of advice: 20 June 2016
Published: August 2016

Ruling: Q1: Whether the proposed transfer of assets and liabilities from Insurer A to Insurer B constitutes a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 . | A1: No. However, there are no GST consequences for the proposed transfer of assets and liabilities from Insurer A to Insurer B.

Relevant facts and circumstances: Insurer A is authorised by the Australian Prudential Regulation Authority (APRA) to carry on insurance business in Australia under the Insurance Act 1973 (Insurance Act). Insurer B is authorised by the APRA to carry on insurance business in Australia under the Insurance Act. The Australian risks underwritten by Insurer A in their insurance business include: • professional Indemnity • directors' & Officers' Liability • Management Liability • Medical Malpractice Sometime in 20xx, Insurer A transferred: • all renewal rights for their business to Insurer B and ceased to write new business, and • all of their claims management staff to Insurer B. Effective from that date, Insurer A's business only undertakes certain claims for policies underwritten by Insurer A before that date. Further, effective from that date, Insurer A's claims has been managed by Insurer B through an outsourcing agreement between them. It is proposed that Insurer A's business be transferred to Insurer B pursuant to a Scheme to be confirmed by the relevant Court of Australia under Division 3a of Part III of the Insurance Act. Pursuant to the Scheme: • all insurance contracts of Insurer A will be transferred to Insurer B • all rights and obligations of Insurer A under those contracts will become rights and obligations of Insurer B • policyholders will continue to have the same rights and obligations under or in respect of any insurance contract or claim but with Insurer B as the insurer rather than Insurer A • all insurance liabilities in relation to these contracts will be assumed by Insurer B • Insurer B will indemnify Insurer A against all future claims, losses, liabilities, costs and expenses that might arise in connection with insurance contracts • insurance business liabilities including claims, losses, liabilities, costs, or expenses of any kind of the insurance business carried out by Insurer A will be transferred to Insurer B • in consideration of the transfer of Insurer A's rights under the contracts to Insurer B, Insurer B will pay Insurer A an amount of $X • in consideration of the assumption by Insurer B of Insurer A's obligations and liabilities under the contracts, Insurer A will pay Insurer B an amount of $X plus an additional amount of $Y • Insurer A and Insurer B agree to offset and adjust the amounts payable as referred to above • After the proposed transfer, claims administration (for policies underwritten by Insurer A before the proposed transfer) will be managed in the same way by Insurer B and by the same staff (who were transferred from Insurer A to Insurer B sometime in 20xx).

Relevant legislative provisions: A New Tax System (Goods and Services Tax ) Act 1999 Section 9-5, | A New Tax System (Goods and Services Tax ) Act 1999 Section 9-10, | A New Tax System (Goods and Services Tax ) Act 1999 Section 9-15, | A New Tax System (Goods and Services Tax ) Act 1999 Section 9-20 and | A New Tax System (Goods and Services Tax ) Act 1999 Section 38-325.

Reasons for decision: Summary: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Among other things, section 9-5 provides: You make a taxable supply if: (a) you make a supply for *consideration Among other things, subsection 38-325(1) provides: The *supply of a going concern is GST-free if: (a) the supply is for *consideration Subsection 38-325(2) defines a 'supply of a going concern' to be: (a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and (b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). Insurer A and Insurer B agree to enter into the Scheme which provides, among other things: • Insurer A to transfer its Australian insurance business to Insurer B; • in consideration of the transfer of Insurer A's rights under the contracts to Insurer B, Insurer B will pay Insurer A an amount of $X; and • in consideration of the assumption by Insurer B of Insurer A's obligations and liabilities under the contracts, Insurer A will pay Insurer B an amount of $X plus an additional amount of $Y as consideration for the assumption of liabilities by Insurer B. Sometime in 20xx, Insurer A has transferred all of their claims management staff to Insurer B. From that date, Insurer A has ceased to write new policies and has outsourced to Insurer B the claims administration for policies distributed and underwritten by Insurer A before that date. In transferring its Australian insurance business to Insurer B, Insurer A agrees to pay $Y as consideration for the assumption of liabilities by Insurer B, although the transfer has a zero impact on net assets of Insurer B as the rights under the contracts transferred from Insurer A to Insurer B equals the obligations and liabilities under those contracts transferred from Insurer A to Insurer B. For GST purposes: • Insurer A's Australian insurance business constitutes an enterprise • In transferring its Australian insurance business to Insurer B, Insurer A supplies to Insurer B all of the things that are necessary for the continued operation of an enterprise • Insurer A carries on, or will carry on, the enterprise until the transfer occurs, and • Insurer A receives no monetary or non-monetary consideration for transferring its Australian insurance business to Insurer B. Therefore, the transfer of Insurer A's Australian insurance business to Insurer B does not satisfy paragraphs 9-5(a) and 38-325(1)(a). Therefore GST does not apply to the supply.