If eligible, the members of a co-insurance group can form a GST joint venture with the lead insurer nominated as the joint venture operator. The participants in the joint venture would need to have a joint venture agreement. The joint venture operator must notify us of the formed GST joint venture.
The lead insurer as the joint venture operator would be liable for the GST payable on any taxable supply or taxable importation it makes on behalf of another entity that is a participant in the joint venture, in the course of the activities for the joint venture – subsection 51-30(1).
The lead insurer as the joint venture operator would be entitled to claim an input tax credit for creditable acquisitions or creditable importations it makes on behalf of another entity that is a participant in the joint venture, in the course of the activities for the joint venture – section 51-35.
The lead insurer as the joint venture operator would account for any adjustments relating to any supply, acquisition or importation it makes on behalf of another entity that is a participant in the joint venture, in the course of the activities for the joint venture at the time the adjustment arises – section 51-40.
Any supply that the lead insurer as the joint venture operator makes to a participant in the GST joint venture is not a taxable supply provided that the participant acquired the supply in the course of activities for the joint venture.
The lead insurer as the joint venture operator would give us a GST return for each tax period applying to the operator detailing the net amount relating to the GST joint venture.
Participants in a GST joint venture will be jointly and severally liable for any amount payable by the joint venture operator that relates to the joint venture. Participants will each be taken to have committed offences by the joint venture operator but certain defences will be available to them. However, joint venture participants can enter into an indirect tax sharing agreement with the joint venture operator to limit their exposure to joint and several liability for the joint venture operator's indirect tax liability.
If the lead insurer is the joint venture operator of a co-insurance GST joint venture and as the operator made acquisitions – such as building services, replacement equipment, or general claims costs – in its own right (to the extent of its share of the co-insurance arrangement) and as agent for the other co-insurers (to the extent of their share of the co-insurance arrangement), the lead insurer will be entitled to the input tax credits on the acquisition. The lead insurer, as the joint venture operator, would also be entitled to any decreasing adjustments arising under Division 78.
As supplies that the joint venture operator makes to participants of the GST joint venture are not taxable supplies, the lead insurer's supply of administration services to the other co-insurers would not be a taxable supply.
The lead insurer, as the joint venture operator, would recover:
- the acquisitions costs net of any input tax credit claimed
- any Division 78 settlement amount net of any decreasing adjustment
- any administration services fee.
Example: Joint venture agreement
Under a co-insurance arrangement, Chopra Insurance is agent of three other co-insurers for the purposes of:
- supplying the insurance offered by the co-insurers
- settling claims under those policies, whether by making acquisitions or importations, making acquisitions or importations directly for the purpose of settling claims, or making cash settlements.
The four co-insurers form a GST joint venture with Chopra Insurance as joint venture operator.
Under the co-insurance arrangement, the four co-insurers (including Chopra Insurance) supply an insurance policy to Dresswell Inc, a supplier of fashionable men's clothing to members of Abs Galore. The supply is made through Chopra Insurance as agent for the other three co-insurers and in its own right. The insurance premium is $22,000. Dresswell Inc is entitled to full input tax credits on this premium. Each co-insurer makes one-quarter of the supply as they share the risks equally.
Chopra Insurance, as joint venture operator, has the full GST liability on the supply of $2,000.
Dresswell Inc makes a claim under the policy.
Chopra Insurance settles the claim by making a creditable acquisition of services for $1,650 and a cash settlement of $10,000. Chopra Insurance will claim a full input tax credit of $150. Chopra Insurance would also claim the full decreasing adjustment, but in this case there was a full input tax credit on the insurance premium, so there is no decreasing adjustment.
End of exampleSee also:
- GSTR 2004/2 Goods and services tax: What is a joint venture for GST purposes?