Jonathan Teoh

GST and Insurance: Australia

Intermediary services related to the provision of casualty insurance (for losses other than life or health) are fully subject to GST in Australia. Tax is levied on the value of insurance premiums paid by registered and unregistered policy-holders. Registered enterprises (other than those making input taxed (exempt) supplies), claim offsetting input tax credits for GST imposed on the premiums. Settlements paid to unregistered claimants attract a notional input tax credit to the insurer and settlements paid to registered claimants are out of scope payments with no GST consequences. The final result is that GST is paid on intermediary services provided to both unregistered and registered enterprises. The GST paid on intermediary services to registered enterprises is fully recovered by the enterprises (except to the extent the insured enterprises make input taxed (exempt) supplies) through the ordinary tax invoice and credit system. More detailed rules ensure similar outcomes are achieved where settlements are made in kind, where reinsurance arrangements are in place, and when insurers operate through agents.

Loan Intermediary Services: Australia

Australia’s goods and services tax (GST) follows the conventional VAT model and treats loan intermediary services as input taxed (exempt) supplies. Financial supplies are defined in regulations in terms not greatly different than found elsewhere. However, the Australian rules contain a number of features not usual elsewhere, reflecting in part different features of the Australian financial system such as the surcharge commonly imposed on sales paid by credit card. A general apportionment rule for input tax credits related to making financial supplies and taxable supplies is supplemented by a de minimis rule that allows many businesses to avoid the need for apportionment of input tax. A unique measure that deems some financial acquisitions to be financial supplies removes any possibility of investors claiming input tax credits. Another rule, adopted to remove the financial institution self-supply bias that favours large financial institutions over smaller competitors unable to bring some services in-house, provides a special ‘reduced input tax credit’ (usually 75% of the input tax) for selected inputs used by financial suppliers in the course of making supplies of loan intermediary services.