House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 6 GST amendments relating to compulsory third party schemes

Outline of chapter

6.1 Schedule 11 to this bill amends the GST Act to:

•

modify the GST insurance provisions to apply to an insurer that makes payments or supplies in relation to CTP insurance policies and to apply similar provisions to payments and supplies that are made in relation to CTP compensation and other CTP non-insurance policy related matters; and

•

ensure that the GST insurance provisions apply to payments and supplies made by CTP insurers pursuant to settlement sharing arrangements.

Schedule 11 also amends the GST Transition Act to ensure that no adjustment or taxable supply arises in relation to a settlement of a claim under a CTP insurance policy or from a claim for compensation under a CTP scheme, to the extent the event giving rise to the claim happened before 1 July 2000.

Context of amendments

6.2 Each State and Territory has a CTP motor accident injury insurance or compensation scheme that operates in conjunction with motor vehicle registration processes. The CTP schemes vary in structure and operation to each other. Some CTP schemes operate as insurance schemes, while other schemes operate as compensation schemes. In addition, some CTP schemes operate through a single entity, being either a government enterprise or a private insurer, while other schemes operate through a number of private insurers.

6.3 If the supplier is registered for GST, the supply of insurance, including CTP insurance, may be a taxable supply. Where the insurance is acquired for a creditable purpose, an entity that is registered, or required to be registered, for GST would normally be entitled to claim an input tax credit. Insurers are entitled to a decreasing adjustment for payments or supplies made in settlement of claims under insurance policies, but only to the extent that there is no entitlement to an input tax credit for the premium. The insurance provisions contained within Division 78 of the GST Act apply in a modified form to payments and supplies made in settlement of claims for compensation in a similar manner to how they apply to the settlement of claims under insurance policies.

6.4 However, after consultation with members of the CTP industry, it has been established that the GST insurance provisions do not apply as intended to some payments or supplies made in settlement of claims under a CTP scheme. Furthermore, there are a number of other insurance related payments or supplies made by CTP insurers that should be subject to the GST insurance provisions. For example, these include payments of hospital and ambulance charges that arise for services that have been provided directly to injured persons involved in motor vehicle accidents, that are paid by an insurer via CTP scheme wide bulk-billing arrangements.

6.5 CTP schemes operate to ensure that people injured in motor vehicle accidents are able to obtain compensation and other benefits as a result of the injuries they have suffered. All the CTP schemes are established and governed by a State or Territory law that imposes on insurers or scheme operators various obligations. Whether the CTP schemes operate through insurance polices issued by private insurers, or operate through a single state agency, the nature and purpose of the schemes remain unchanged.

6.6 Therefore, some of the transactions and obligations that arise for CTP insurers and operators of CTP compensation schemes do not necessarily arise for many other types of insurers. These obligations can include: settling claims by injured persons without necessarily having any contact with an insured; using rights of recovery other than rights of subrogation (or being limited in the use of those rights); and being required to make payments for services provided directly to an injured person, without a claim being made by any person under the scheme.

6.7 Payments or supplies made by CTP insurers or operators of CTP compensation schemes in settlement of claims made under CTP schemes should be subject to the same GST provisions, or similar provisions, to those that apply to settlements of claims under insurance policies.

6.8 In some CTP schemes that operate through multiple insurers, such as those schemes currently operating within New South Wales and Queensland, the insurers participate in settlement sharing arrangements. Under these arrangements, accidents that involve more than one vehicle and more than one insurer, require one of the insurers to manage all claims arising from the accident. The other insurers involved in the arrangement for that accident, contribute a share of the settlement payment.

6.9 In addition to settlement sharing arrangements that operate between CTP insurers, claims made against the Nominal Defendant in New South Wales are also subject to sharing. This typically involves sharing a claim that arises from an accident involving an uninsured owner or driver. There are also some sharing arrangements between insurers that operate across different CTP schemes, such as where there is an accident involving vehicles from different States or Territories.

6.10 In a multi-vehicle accident, a claimant may choose not to claim against every vehicle driver involved in the accident. No matter which insurer receives the claim, the settlement of the claim will be shared by all insurers subject to the sharing arrangement for that particular accident. Through the sharing arrangement, an insurer may be required to contribute to the settlement of the claim without a claim being made by its insured. Therefore, as the payments made by the insurer are not made in settlement of a claim under an insurance policy, the payment may not be subject to the GST insurance provisions. This is also the case where the claim that is subject to a sharing arrangement is a claim made for a payment of compensation against a nominal defendant.

6.11 As the payments or supplies made by insurers under a sharing agreement form part of the settlement of a claim under a CTP scheme, the payments or supplies should be treated for GST purposes, as though they are payments or supplies made in settlement of a claim under an insurance policy or in settlement of a claim for compensation.

6.12 Under the GST, CTP insurers and nominal defendants that enter into settlement sharing arrangements may be making taxable supplies relating to their obligations under the arrangement. They may also be making creditable acquisitions from other insurers that enter into the agreement. The value of these supplies may be difficult to determine in the circumstances of a settlement sharing arrangement. In addition, insurers may be required to participate in sharing arrangements under the laws that govern the operation of the scheme. Therefore, entering into a settlement sharing arrangement should not result in a taxable supply or creditable acquisition arising for either the insurers or a nominal defendant.

Summary of new law

6.13 This bill will:

•

include Division 79 into the GST Act to modify the GST insurance provisions to apply to an insurer that makes payments or supplies in relation to CTP insurance policies and to apply similar provisions to payments and supplies that are made in relation to CTP compensation and other CTP non-insurance policy related matters;

•

include Division 80 into the GST Act to ensure that the GST insurance provisions apply to payments and supplies made by CTP insurers pursuant to settlement sharing arrangements; and

•

amend the GST Transition Act to ensure that no adjustment or taxable supply arises in relation to a settlement of a claim under a CTP insurance policy or of a claim for compensation under a CTP scheme, to the extent the event giving rise to the claim happened before 1 July 2000.

Comparison of key features of new law and current law

Detailed explanation of new law

Division 79

6.14 Division 79 is inserted into the GST Act. This Division modifies the application of Division 78 to some insurance policy payments and supplies made under a CTP scheme. Division 79 also applies to payments and supplies made in connection with, but not under, insurance policies. For other settlements and payments, including settlements of claims for compensation, provisions similar to Division 78 apply. [Schedule 11, item 18, section 79-1]

6.15 A compulsory third party scheme is defined within the GST dictionary. A CTP scheme is a scheme or arrangement that is established by an Australian law and is specified in the GST Regulations. These schemes will consist of each of the State and Territory motor vehicle CTP schemes. [Schedule 11, item 21, section 195-1]

6.16 Division 79 replaces the application of Division 78 to payments or supplies made by an operator of a CTP scheme in relation to compensation matters. Therefore, CTP schemes have been removed from the definition of a statutory compensation scheme as set out in section 78-105, which previously allowed for the application of the insurance provisions within Division 78 to CTP compensation schemes. [Schedule 11, item 16, section 78-105]

6.17 The removal of CTP schemes from the definition of a statutory compensation scheme, does not affect the operation of the GST Regulations as they apply to statutory compensation schemes that are not CTP schemes. [Schedule 11, item 17]

6.18 The provisions of Division 79 apply to an operator of a CTP scheme. The GST dictionary has been amended to include a definition of operator. An operator of a CTP scheme means an entity that is required under an Australian law to make payments or supplies in settlement of claims under the scheme. This definition encompasses insurers that make payments and supplies in settlement of claims under CTP insurance policies. It also encompasses an entity that is responsible for the settlement of claims for compensation made under a CTP scheme. [Schedule 11, item 38, section 195-1]

Subdivision 79-A

6.19 Subdivision 79-A modifies the application of Division 78 to certain CTP payments and supplies that are made under insurance policies.

Premium selection test

6.20 An operator may be able to determine its entitlement to a decreasing adjustment under section 78-10 for a payment or supply that it makes in settlement of a claim under an insurance policy, by treating the entity that acquires the policy as having, or not having, an entitlement to an input tax credit on the premium. However, the operator can only apply these rules where the premium selection test is satisfied. [Schedule 11, item 18, subsection 79-5(1)]

6.21 The term premium selection test is satisfied is referred in the GST dictionary as having the meaning given in subsection 79-5(2). Applying the premium selection test rules to determine if an operator is entitled to a decreasing adjustment for a payment or supply made in settlement of a claim under an insurance policy, will simplify an operator's dealing with its policyholders, and should lower overall compliance costs for the operator. [Schedule 11, item 39, section 195-1]

6.22 Under subsection 79-5(2), if an operator offers an insurance policy with a selection of premiums, and an entity acquiring the policy selected a premium that was offered by the operator on the basis that the entity is entitled to an input tax credit for some or all of the premium, the operator will treat the entity as being entitled to a full input tax credit for the premium. This means that the operator will not be entitled to claim a decreasing adjustment under section 78-10 for any payment or supply it makes in settlement of a claim under that insurance policy. [Schedule 11, item 18, subsections 79-5(2) and 79-5(3)]

6.23 If an operator offers an insurance policy with a selection of premiums and an entity acquiring the policy selected a premium that was offered by the operator on the basis that the entity is not entitled to an input tax credit for the premium, the operator will treat the entity, for the purposes of determining its entitlement to any decreasing adjustment under section 78-10, as not being entitled to an input tax credit for the premium. Subject to the operator satisfying all the other tests within section 78-10, the operator will be entitled to claim a full decreasing adjustment on any payment of supply it makes in settlement of a claim under that insurance policy. [Schedule 11, item 18, subsections 79-5(2) and 79-5(4)]

Example 6.1

LBK Pty Ltd offers Jan a CTP policy with a choice of two premiums. If Jan is entitled to claim an input tax credit for the premium, she will pay $105. If she is not entitled to claim an input tax credit for the premium, she will pay $100. Jan selects the premium of $100. LBK Pty Ltd will treat Jan as not being entitled to an input tax credit for the premium.

6.24 If an operator is not entitled to a decreasing adjustment for a payment or supply it has made in settlement of a claim under an insurance policy because of the application of the premium selection test, and the operator later becomes aware that there was no input tax credit entitlement for the premium, the operator will, subject to continuing to satisfy the tests in section 78-10, have a decreasing adjustment. Any decreasing adjustment is reduced by the notional increasing adjustments that would have applied in relation to any recoveries made by the operator in respect of the settlement of a claim under the relevant insurance policy. [Schedule 11, item 18, subsection 79-10(1)]

6.25 If an operator has treated an entity as having no input tax credit entitlement for the premium because of the application of the premium selection test, and it later becomes aware that the entity did have an entitlement to an input tax credit for the premium, the operator will have an increasing adjustment. The increasing adjustment equals the amount of the original decreasing adjustment claimed by the operator, reduced by any increasing adjustments that applied in relation to recoveries made by the operator in respect of the settlement of a claim under the relevant insurance policy. [Schedule 11, item 18, subsection 79-10(2)]

Example 6.2

Jan makes a claim under a policy she acquired from LBK Pty Ltd. An amount of $1100 is paid by LBK Pty Ltd in settlement of the claim. As Jan selected the premium for the policy on the basis that she is not entitled to an input tax credit on the premium, LBK Pty Ltd calculates its entitlement to a decreasing adjustment as $100 which is one eleventh of the $1100.

LBK Pty Ltd is later informed by Jan that she is entitled to claim an input tax credit for the premium. LBK Pty Ltd has an increasing adjustment of $100, which is the amount of the original decreasing adjustment it has claimed.

If LBK Pty Ltd had made a recovery of $220 of the settlement amount, and calculated an increasing adjustment of $20 in relation to the recovery prior to Jan advising of her entitlement to claim an input tax credit, the increasing adjustment of $100 would be reduced by the $20. LBK Pty Ltd would have a net increasing adjustment of $80.

6.26 If an operator does not offer a choice of premiums for the supply of an insurance policy within the circumstances to which the premium selection test applies, the operator will continue to determine its entitlement to a decreasing adjustment for any payment or supply made in settlement of a claim under the policy, unless the sole operator election rules apply, using the actual input tax credit entitlement for the premium.

Sole operator election

6.27 Where a CTP scheme has a sole operator that is responsible for the issue of insurance policies, the operator may elect to apply the average input tax credit fraction in the calculation of any decreasing adjustment to which it is entitled under section 78-10. Once a valid election has been made, the actual input tax credit entitlement for the premium, or the assumed input tax credit entitlement where the premium selection test is satisfied, is irrelevant in determining if the operator is entitled to a decreasing adjustment, or to the amount of the adjustment. The average input tax credit fraction is discussed further in relation to the operation of Subdivision 79-D. [Schedule 11, item 18, subsection 79-15(1)]

6.28 An election only applies to settlements of claims under insurance policies. This is because operators that make payments or supplies in settlement of claims for compensation will already use the average input tax credit fraction in the calculation of any decreasing adjustment to which they are entitled. In a CTP scheme that has multiple operators, in order to determine if it has a liability in respect of a claim, the operator needs to determine if a claim relates to an insurance policy that was issued by it, or relates to a policy issued by another operator. The election is available to sole operators of CTP schemes because they, unlike multiple operator schemes, are responsible for the settlement of all claims made in respect of insurance policies issued under the CTP scheme. Sole operators are therefore able to settle claims under insurance policies in the same way they would settle claims for compensation.

6.29 An operator must continue to satisfy all of the tests within section 78-10 to be entitled to a decreasing adjustment using the average input tax credit entitlement fraction. The test in paragraph 78-10(2)(b) is assumed to be satisfied for the purposes of determining an operator's entitlement to a decreasing adjustment. [Schedule 11, item 18, subsection 79-15(2)]

6.30 For a valid election to be made, the election must be made in writing. In addition, the election must specify the financial year from which the election will take effect and must be made before the commencement of that financial year. Once the election has been made, it remains in force until the end of the financial year in which it is revoked. [Schedule 11, item 18, subsections 79-15(4), 79-15(5) and 79-15(7)]

Example 6.3

LBK Pty Ltd is the sole operator of a CTP scheme.

At a board meeting on 16 June 2009 the directors of LBK Pty Ltd make an election, in writing, to apply the averaged input tax credit fraction to settlements of claims under insurance policies. The election is to apply for the financial year commencing 1 July 2010.

At a board meeting on 15 January 2015, the directors revoke the election of 16 June 2009. The original election will remain in force until 30 June 2015.

6.31 For an election to be valid for the financial year commencing on 1 July 2003, an operator must have made the election within 30 days after the day on which the election provisions commence. The operator will need to specify that the election applied from 1 July 2003. This section recognises that the election provisions may not be operational as at 1 July 2003. [Schedule 11, item 18, subsection 79-15(6)]

6.32 While some CTP operators will continue to require an insured's actual input tax credit entitlement information to determine their entitlement to a decreasing adjustment for a settlement amount, an entity that acquires CTP insurance will no longer be subject to a possible GST liability under section 78-50, upon the making of a settlement of a claim, where that entity has not informed the operator of its input tax credit entitlement for the premium. This requirement has been removed for a number of reasons. Under a CTP insurance scheme, the CTP insurance transfers with the ownership of the vehicle and the entity that originally acquired the policy may be unaware of any subsequent claim made by the new owner under the policy. In addition, it is understood that many claims by injured persons are settled by operators without the necessity for a claim being made by the insured. The CTP premium selection rules, sole operator election rules and the application of an averaged input tax credit fraction to calculations of decreasing adjustments in respect to settlements of claims for compensation, alleviate in all but limited circumstances, the need for an insured or other entity, to inform an operator of their input tax credit entitlement for a premium. [Schedule 11, item 15, paragraph 78-50(1)(c)]

Recoveries

6.33 Several sections within Division 78 only apply to an insurer exercising its rights of subrogation under an insurance policy. Under a CTP scheme, an operator may be restricted in the exercising of its rights of subrogation or be granted other rights under the scheme. Section 79-20 extends the operation of the Division 78 provisions to apply in circumstances where the operator exercises rights other than rights of subrogation. For instance, where the operator exercises statutory rights of recovery under a law governing a CTP scheme. The modification of the provisions in Division 78 extends to circumstances where the recovery is made under a court order, but does not extend to include payments or supplies obtained by an operator making a claim under a policy of reinsurance. Similar provisions within Subdivision 79-C apply for recoveries made by an operator in relation to settlements of claims for compensation. [Schedule 11, item 18, section 79-20]

Subdivision 79-B

6.34 Subdivision 79-B extends Division 78, as modified by Subdivision 79-A, to apply to certain CTP payments and supplies that are connected with, but not made under, insurance policies.

6.35 A payment or supply made by an operator that is connected with, but not made under, an insurance policy is referred to as a CTP hybrid payment or supply. The GST dictionary has been amended to include a reference to this term, which has the meaning given in subsection 79-25(1). A CTP hybrid payment or supply arises where an entity other than the operator's insured, notifies the operator of its intention to seek payment of damages from the insured. Such claims may be claims for compensation. Pursuant to the CTP scheme, the operator may settle the claim without requiring a claim to be made under the insured's insurance policy. [Schedule 11, item 18, subsection 79-25(1); item 29, section 195-1]

Example 6.4

Jan acquires CTP insurance from LBK Pty Ltd. Jan has an accident in her vehicle in which Bob is a passenger. Bob is injured in the accident. In accordance with the normal requirements of the CTP scheme, Bob notifies LBK Pty Ltd of his claim for damages against Jan. Jan does not make a claim under her policy.

LBK Pty Ltd accepts the claim made by Bob and proceeds to make a settlement payment in satisfaction of the claim. LBK Pty Ltd would not have accepted the claim from Bob but for the identification of Jan as a policyholder of LBK Pty Ltd. The payment to Bob is a CTP hybrid payment, as Jan does not make a claim under her insurance policy in relation to the settlement of Bob's claim.

6.36 A payment or supply is not a CTP hybrid payment or supply where the entity that paid the premium for the insurance policy has not notified the operator of its entitlement to an input tax credit for the premium, and cannot be located in order to obtain such notification. Payments or supplies made under these circumstances may be payments or supplies in settlement of a claim for compensation to which Subdivision 79-C applies. This means that the operator may be able to apply the averaged input tax credit fraction in the calculation of any decreasing adjustment arising from the settlement of the claim. [Schedule 11, item 18, subsection 79-25(2)]

Example 6.5

Jan acquires CTP insurance from LBK Pty Ltd. LBK Pty Ltd offers a single premium for the policy. Jan does not advise LBK Pty Ltd at the time of acquiring the policy of her entitlement to claim an input tax credit for the premium.

Jan's motor vehicle is involved in an accident. Bob was injured as a result of the accident. Bob notifies LBK Pty Ltd of his claim for damages against Jan. LBK Pty Ltd attempts to contact Jan and establishes she has left the country and cannot be located.

LBK Pty Ltd proceeds to settle Bob's claim. LBK Pty Ltd will treat the settlement payment as a payment of compensation as there is no claim made by Jan under her policy. LBK Pty Ltd will apply the average input tax credit fraction in any calculation of its decreasing adjustment for the settlement as it cannot establish what Jan's input tax credit entitlement is for the premium.

6.37 However, a payment or supply made by an operator in settlement of a claim that is made in relation to an insurance policy that was offered by the operator applying the premium selection test, is not a CTP hybrid payment or supply. This is because the operator can use the premium selection test rules to determine its entitlement to a decreasing adjustment for any payment or supply made in settlement of a claim under the policy. [Schedule 11, item 18, subsection 79-25(2)]

6.38 A payment or supply will not be a CTP hybrid payment or supply where the operator making the payment or supply was required to do so by law because of the bankruptcy or insolvency of another operator who is an insurer. This is because any decreasing adjustment that may arise from the settlement of a claim under an insurance policy remains with the operator that issued the insurance policy. [Schedule 11, item 18, subsection 79-25(3)]

6.39 Division 78, as modified by Subdivision 79-A, will apply to a CTP hybrid payment or supply that is made by an operator in settlement of a claim under a CTP scheme, as if the payment or supply was made in settlement of a claim by an insured under an insurance policy. [Schedule 11, item 18, section 79-30]

Subdivision 79-C

6.40 Subdivision 79-C applies to a CTP compensation payment or supply and to a CTP ancillary payment or supply. Together, these are termed a CTP compensation or ancillary payment or supply. The GST dictionary has been amended to include a reference to this term, which is defined in subsection 79-35(1). [Schedule 11, item 18, subsection 79-35(1); item 26, section 195-1]

6.41 A CTP compensation payment or supply is a payment or supply that is made in settlement of a claim for compensation under a CTP scheme. The GST dictionary has been amended to include a reference to a CTP compensation payment or supply which has the meaning given in subsection 79-35(2). What constitutes 'compensation' is not defined within the GST Act and the term has its ordinary meaning. [Schedule 11, item 18, subsection 79-35(2); item 27, section 195-1]

6.42 A CTP compensation payment or supply does not include a payment or supply to which Division 78 applies or is a CTP hybrid payment or supply. It also does not include a CTP dual premium or election payment or supply. The GST dictionary has been amended to include a definition of this term, which is a payment or supply to which sections 79-5 or 79-15, concerning payments or supplies in relation to the settlement of a claim under an insurance policy, apply. A CTP compensation payment or supply also excludes a payment or supply that an operator is required to make by law because of the bankruptcy or insolvency of another operator who is an insurer. [Schedule 11, item 18, subsection 79-35(2); item 28, section 195-1]

6.43 A CTP ancillary payment or supply is a payment or supply of a kind that is specified in the GST Regulations. The GST dictionary includes a reference to this term, which has the meaning given by subsection 79-35(3). It does not include a payment or supply that is made in settlement of a claim under an insurance policy or in settlement of a claim for compensation. In addition, a payment or supply is not a CTP ancillary payment or supply where it is consideration for a creditable acquisition, or it is made by an operator under the law governing the scheme because of the bankruptcy or insolvency of another operator. [Schedule 11, item 18, subsection 79-35(3); item 25, section 195-1]

6.44 Under CTP schemes, operators may be required to either pay, or make a contribution to, the cost of providing medical care and rehabilitation services, or to enable such services to be provided, to injured persons. These services include those provided to the families or representatives of injured or deceased persons. For example, in some CTP schemes, this involves bulk-billing arrangements between operators and hospital and ambulance service providers. These types of payments are required to be made by an operator even where no actual claim is made by an injured person under the scheme as the result of an accident. However, a CTP ancillary payment or supply does not extend to include payments or supplies that an operator makes in relation to the general administration of the operator's CTP enterprise.

6.45 Specifying within the GST Regulations those types of services or supplies, payment for which will constitute a CTP ancillary payment or supply, will facilitate potential changes to the types of services or supplies made under the various CTP schemes.

6.46 The remaining sections within Subdivision 79-C apply similar provisions to those within Division 78 that operate in respect to policies of insurance, to CTP compensation and ancillary payments or supplies.

6.47 Section 79-40 ensures that the value of a taxable supply for which the price includes an amount of a CTP premium is worked out as if the price for the supply were reduced by the amount of any stamp duty payable in respect of the supply. This section is consistent with the operation of sections 78-5 and 78-95 that relate to insurance premiums and levies imposed under statutory compensation schemes. [Schedule 11, item 18, section 79-40]

6.48 The GST dictionary has been amended to include a definition of CTP premium . It includes and encompasses a payment of a premium or of a levy in connection with a CTP scheme. [Schedule 11, item 30, section 195-1]

6.49 Like section 78-115 in its application to statutory compensation schemes, section 79-45 ensures that the appropriate Subdivision 79-C provisions do not apply to a CTP scheme that is an excluded scheme. [Schedule 11, item 18, section 79-45]

6.50 Under section 79-50, an operator that makes a CTP compensation or ancillary payment or supply is, subject to satisfying a number of tests within that section, entitled to a decreasing adjustment for the payment or supply. The operator must be registered, or required to be registered, for GST, and any CTP premium charged by the operator must be consideration for a taxable supply. Any decreasing adjustment is calculated using the average input tax credit fraction. [Schedule 11, item 18, section 79-50]

6.51 Under section 79-55, an operator will have an increasing adjustment if there is a payment of an excess to the operator in relation to a CTP compensation payment or supply that it has made, and the operator has made creditable acquisitions directly for the purpose of making the CTP compensation payment or supply. This section is similar to section 78-18 that operates in relation to insurance policies. [Schedule 11, item 18, section 79-55]

6.52 Section 79-60 ensures, that in respect to a CTP compensation or ancillary payment or supply that is made by an operator, the payment or supply is not treated as consideration for an acquisition made by the operator or consideration for a supply made by the entity to whom the payment or supply was made. This means that no taxable supplies or creditable acquisitions arise for either party. This section is similar to sections 78-20, 78-25, 78-65 and 78-70 in respect of insurance polices. [Schedule 11, item 18, section 79-60]

6.53 Section 79-65 applies where an operator exercises its rights under the CTP scheme to make a recovery from another entity. Any payment or supply made by a third party to the operator is not treated as consideration for a supply made by the operator or consideration for an acquisition made by the entity making the payment or supply. This section is similar to sections 78-35 and 78-75 as modified by Subdivision 79-A, that operate in respect to insurance policies. [Schedule 11, item 18, section 79-65]

6.54 Section 79-70 provides an adjustment under Division 19 for an operator that receives a payment or supply from another entity in exercising its rights to recover from that entity in relation to a CTP compensation or ancillary payment or supply it has made. This section is similar to section 78-40 as modified by Subdivision 79-A, that operates in respect of insurance policies. [Schedule 11, item 18, section 79-70]

6.55 Section 79-75 provides for an adjustment under Division 19 to be made in relation to an increasing adjustment the operator has had under section 79-55, where the amount of the excess payment has changed. This section is similar to section 78-42 that operates in relation to insurance policies. [Schedule 11, item 18, section 79-75]

6.56 Section 79-80 ensures that payments of an excess by an entity to an operator of a CTP scheme, are not treated as consideration for a supply made to the entity or to any other entity. This means that no taxable supply can arise for the entity making the excess payment. This section is similar to section 78-55 that operates in relation to insurance policies. [Schedule 11, item 18, section 79-80]

6.57 Section 79-85 ensures that the supply of goods is not a taxable supply if it is solely a supply made under a CTP scheme to an operator in the course of settling a claim for compensation under the scheme. If the supply of goods to the operator is only partly supplied in the course of settling a claim for compensation under the scheme, that part of the consideration that relates to the supply of the goods is disregarded in working out the value of the taxable supply. This section is similar to section 78-60 that operates in relation to insurance policies. [Schedule 11, item 18, section 79-85]

6.58 Section 79-90 deals with a payment or supply made in compliance with a judgment or court order relating to a claim for compensation under a CTP scheme or where the operator is exercising its rights of recovery in respect of a settlement made under the scheme. If in absence of the judgment or order, the payment or supply would have been a CTP compensation or ancillary payment or supply, the payment or supply is treated as having been a CTP compensation or ancillary payment or supply. This section is similar to section 78-110 which operates in respect of polices of insurance and claims for compensation under a statutory compensation scheme. [Schedule 11, item 18, section 79-90]

Subdivision 79-D

6.59 Subdivision 79-D sets out how an operator is to calculate its decreasing adjustment using the average input tax credit fraction. An operator that makes a CTP compensation or ancillary payment or supply, or a payment or supply in settlement of a claim under an insurance policy to which the election rules apply, will use the average input tax credit fraction in the calculation of any decreasing adjustment to which the operator is entitled. [Schedule 11, item 18, section 79-95]

6.60 There are a series of steps that an operator undertakes in order to calculate its decreasing adjustment. The first step is that the operator determines the payment or supply amount using the method statement set out in subsection 79-95(3). This method statement is similar to that used for determining the settlement amount under subsection 78-15(4) in relation to the settlement of a claim under an insurance policy. However, CTP ancillary payments or supplies are not subject to the grossing up in step 3 of the method statement as they are payments or supplies that are akin to acquisitions rather than settlement payments. [Schedule 11, item 18, subsection 79-95(3)]

6.61 Once the payment or supply amount is determined, the operator calculates the amount of the decreasing adjustment by applying the formula set out in subsection 79-95(2). This formula is similar to that within subsection 78-15(2) that operates in relation to the settlement of a claim under an insurance policy. [Schedule 11, item 18, subsection 79-95(2)]

6.62 The average input tax credit fraction that applies in the calculation of a decreasing adjustment in relation to a CTP compensation payment or supply, or the settlement of a claim under an insurance policy to which an election has been made, is the fraction that applies in the financial year in which the accident or other incident to which the claim relates happened. [Schedule 11, item 18, subsection 79-95(2)]

6.63 A reference to an accident or other incident, is a reference to the physical event that occurred which leads to the operator making payments or supplies in settlement of a claim. For instance, a collision between two vehicles is the accident or incident which will determine the relevant fraction to be used depending upon the financial year in which the accident or incident occurred.

Example 6.6

Jan has an accident in her motor vehicle on 7 January 2010. The relevant average input tax fraction applicable to the CTP scheme under which Jan is covered for the financial year commencing on 1 July 2009 is 30%. For the financial year commencing 1 July 2010, the fraction is changed to 40%.

LBK Pty Ltd, as the sole operator of the relevant CTP scheme, has made an election to apply the fraction to settlements of claims. No matter when LBK Pty Ltd makes a payment or supply in settlement of a claim made by Jan under her insurance policy, it will apply the 30% rate that is applicable to the financial year commencing 1 July 2009 in the calculation of its decreasing adjustments. This is because the 2009-2010 financial year is the year in which the accident occurred that led to the claim.

6.64 However, if the payment or supply is a CTP ancillary payment or supply, then the average input tax credit fraction that applies to the calculation of the decreasing adjustment is the fraction that applies in the financial year in which the payment is made. This is because a CTP ancillary payment or supply is not connected to a claim for compensation or a claim under an insurance policy, that is linked to a particular accident or incident. [Schedule 11, item 18, subsection 79-95(2)]

Meaning of average input tax credit fraction

6.65 The meaning of average input tax credit fraction is set out in section 79-100. The GST dictionary has also been amended to incorporate a reference to this definition. [Schedule 11, item 18, subsection 79-100(1); item 20, section 195-1]

6.66 The average input tax credit fraction that applies for the financial years beginning 1 July 2000, 1 July 2001 and 1 July 2002 is nil. This is because under section 23 of the GST Transition Act, no entity is entitled to claim an input tax credit for a premium or levy that relates to CTP cover commencing before 1 July 2003. [Schedule 11, item 18, subsection 79-100(1)]

6.67 Where an operator makes a payment or supply in settlement of a claim for compensation that is made in the years commencing 1 July 2000, 1 July 2001 and 1 July 2002, the operator should, subject to satisfying the tests in section 79-50, be entitled to a full decreasing adjustment. Where the operator makes a payment or supply that is a CTP ancillary payment or supply in those same years, it will be entitled to a full decreasing adjustment.

6.68 Where an operator makes an election under section 79-15 to apply the average input tax credit fraction to the calculation of decreasing adjustments, and the cover under the insurance policy commenced prior to 1 July 2003, the operator will be entitled to continue to claim a full decreasing adjustment for any payment or supply made in settlement of a claim under that policy. [Schedule 11, item 18, subsection 79-100(7)]

6.69 However, under section 22 of the GST Transition Act, an operator is not entitled to claim a decreasing adjustment for a payment or supply that is made in settlement of a claim under an insurance policy, or a claim for compensation, where the event giving rise to the claim happened before 1 July 2000. This is discussed further in relation to the amendment to the GST Transition Act.

6.70 For financial years other than those commencing 1 July 2000 to 1 July 2002 inclusive, the average input tax credit fraction is equivalent to the business vehicle use fraction as determined by the Treasurer. The business vehicle use fraction is defined in subsection 79-100(4). It is the business vehicle use expressed as a fraction of the total vehicle use in a State or Territory as determined from Australian Bureau of Statistics information. The use of Australian Bureau of Statistics information is discussed below. [Schedule 11, item 18, subsection 79-100(4)]

6.71 As soon as practical after the commencement of the provisions, the Treasurer will determine a business vehicle use fraction for each CTP scheme to apply from 1 July 2003. The Treasurer will use the Australian Bureau of Statistics Survey of Motor Vehicle Use data, covering the period 1 November 1999 to 31 October 2000, that was published on 27 June 2001. Any revision of the survey data is disregarded in making the determination, thus providing certainty for operators using a fraction that it will not change retrospectively. [Schedule 11, item 18, subsections 79-100(2) and 79-100(5)]

6.72 Following the initial determination made by the Treasurer, the Treasurer will review the fraction using the relevant Australian Bureau of Statistics data on a periodical basis. The first review will occur as soon as practical after the end of the 2006-2007 financial year. If there has been a significant change in the fraction when compared to the previous fraction, as determined by the Treasurer, the Treasurer will determine that a new fraction is to apply from the financial year immediately following the year in which the determination is made. If there has been no significant change, then the previous fraction continues to apply. [Schedule 11, item 18, subsection 79-100(3)]

6.73 Each determination made by the Treasurer is to be published in the Commonwealth of Australia Gazette. [Schedule 11, item 18, subsections 79-100(6)]

Determining the average input tax credit fraction

6.74 The average input tax credit fraction for each CTP scheme is represented by the total actual input tax credit entitlement for all of the eligible entities within the CTP scheme, expressed as a fraction of the total GST payable for the supply of CTP cover under the scheme. Assuming the information on actual input tax credits could be collected, the information required to determine the fraction would need to be collected over time and at some cost to the operator or operators of the scheme.

6.75 Each CTP scheme operates on a State or Territory wide basis. Each vehicle that is registered within a State or Territory must have CTP cover under the relevant scheme. Therefore, the vehicle population of the State or Territory will closely represent the vehicle population of the corresponding CTP scheme. While the actual average input tax credit entitlement for a particular scheme cannot easily be determined directly, it may be derived indirectly via an acceptable survey or sampling technique using the CTP vehicle population information. Any survey or sampling technique would need to be uniformly applied to all of the CTP schemes.

6.76 The Australian Bureau of Statistics has undertaken a Survey of Motor Vehicle Use for each State and Territory. The Australian Bureau of Statistics survey determined by way of sample, the number of kilometres travelled by vehicles within that State or Territory for business or private purposes. The Australian Bureau of Statistics survey was conducted on a uniform basis for all States and Territories.

6.77 An entity that is registered for GST maybe entitled to claim an input tax credit for the GST included in payment of a CTP premium to the extent that the entity acquires and applies the CTP cover in the course of carrying on their enterprise. Essentially, this means that the entity has used the vehicle to which the CTP cover relates, in the course of carrying on their business. Therefore, the total business kilometres travelled in a vehicle for business purposes, may approximate the extent that the vehicle is used in carrying on an entity's enterprise for GST purposes.

6.78 On a whole of State or Territory basis, the business kilometres travelled will approximate the extent of entitlement to claim input tax credits for the CTP premium under the CTP scheme for the State or Territory. The total kilometres travelled within a State or Territory will approximate the total GST payable on CTP premiums under the State or Territory CTP scheme. The business kilometres travelled, expressed as a percentage of total kilometres travelled, will equate to the average input tax credit entitlement of vehicle owners for that State or Territory CTP scheme. Thus, the Australian Bureau of Statistics survey data can be used in determining an approximation of the average input tax credit entitlement for each CTP scheme.

Division 80

6.79 Division 80 is inserted into the GST Act. This Division sets out the GST consequences for certain payments or supplies made by operators under CTP settlement sharing arrangements. Division 80 ensures that Divisions 78 and 79 apply to payments or supplies made in settlement of claims via the operation of settlement sharing arrangements. [Schedule 11, item 18, section 80-1]

Subdivision 80-A

6.80 Subdivision 80-A applies to settlement sharing arrangements where payments or supplies are made in settlement of a claim under an insurance policy. However, this does not extend to circumstances involving the sharing of the cost of creditable acquisitions made by an operator.

6.81 An insurance policy settlement sharing arrangement is an arrangement between the operators of a CTP scheme or schemes where settlements of claims are shared in relation to an accident or incident, and those operators have issued insurance policies to owners or drivers involved in the accident or incident. A CTP settlement sharing arrangement includes those arrangements that are contractual in nature, or are subject to an industry deed, or made under an Australian law governing a CTP scheme. The GST Dictionary has been amended to include a reference to the definition of an insurance policy settlement sharing arrangement, which has the meaning given in section 80-5. An insurance policy settlement sharing arrangement extends to arrangements that involve operators from different CTP schemes, such as when an operator in one State scheme is part of an arrangement in respect of a particular accident with an operator in a different State scheme. [Schedule 11, item 18, section 80-5; item 34, section 195-1]

6.82 A managing operator of a CTP scheme or schemes is an entity that makes payments or supplies in settlement of claims on behalf of itself and other operators under an insurance policy settlement sharing arrangement. The GST dictionary refers to the definition of managing operator as including the meaning given in paragraph 80-5(1)(c)(i). [Schedule 11, item 18, subparagraph 80-5(1)(c)(i); item 35, section 195-1]

6.83 A payment or supply made by a managing operator, if it is not a CTP ancillary payment or supply, is a managing operator's payment or supply. The GST dictionary refers to this term as having the meaning given in subsection 80-5(2). A managing operator's payment or supply does not include a CTP ancillary payment or supply, as the payments are not part of settlement payments or supplies. [Schedule 11, item 18, subsection 80-5(2); item 36, section 195-1]

6.84 A contributing operator of a CTP scheme or schemes is an operator that makes contributing payments to the managing operator in respect of settlements made by the managing operator. The GST dictionary refers to the definition of contributing operator as including the meaning given in subparagraph 80-5(1)(c)(ii). [Schedule 11, item 18, subparagraph 80-5(1)(c)(ii); item 23, section 195-1]

6.85 The payment made by a contributing operator is referred to as the contributing operator's payment . The GST dictionary refers to the definition of this term as including the meaning given in subsection 80-5(3). Any contribution payment made by a contributing operator is reduced by any fees paid, or payable, to the managing operator for managing settlements under an insurance policy settlement sharing arrangement. [Schedule 11, item 18, subsection 80-5(3); item 24, section 195-1]

6.86 Section 80-10 ensures that no taxable supply arises for entering into, or becoming party to an insurance policy settlement sharing arrangement, or becoming party to an industry deed for sharing purposes created by or under a State law or Territory law establishing a CTP scheme. State law or Territory law has the present meaning given in the GST dictionary. [Schedule 11, item 18, section 80-10]

6.87 Section 80-15 ensures that a contributing operator's payment is not treated as consideration for a supply by the managing operator, or for an acquisition by the contributing operator. This means that no taxable supply or creditable acquisition can arise for the contributing operator making payments that form part of the settlement amount of the managing operator. Payments made by a contributing operator to a managing operator that do not form part of the settlement amount may continue to be consideration for a supply made by the managing operator or an acquisition made by the contributing operator. [Schedule 11, item 18, section 80-15]

6.88 For the purposes of Divisions 78 and 79, if a managing operator issued one insurance policy that was subject to an insurance policy settlement sharing arrangement, the managing operator's payment or supply is treated as a payment or supply in settlement of a claim under the insurance policy issued by the managing operator. Insurance policy has the present meaning given in the GST dictionary. [Schedule 11, item 18, section 80-20]

Example 6.7

Katerina and Angela had a motor vehicle accident. Katerina had a CTP insurance policy with ABC Insurance Pty Ltd and Angela had a CTP insurance policy with XYZ Insurance. Katerina makes a claim against Angela and notifies XYZ Insurance of the claim.

Pursuant to an insurance policy settlement sharing arrangement, XYZ Insurance is appointed as the managing operator and makes a payment to settle the claim made by Katerina. The payment is treated as a payment made under the insurance policy issued by XYZ Insurance.

6.89 If a managing operator issued more than one insurance policy that is subject to an insurance policy settlement sharing arrangement that relates to a particular accident or incident, the payment or supply made by the managing operator is treated as a payment or supply in settlement of claims under those insurance policies. Where there is more than one insurance policy the payment or supplies made by the managing operator is allocated in equal proportions to each of the policies. [Schedule 11, item 18, section 80-20]

Example 6.8

Three vehicles are involved in an accident. One vehicle was driven by Georgi and another vehicle was driven by Katerina. Each had a policy of insurance with XYZ Insurance. The third vehicle was driven by Joe, who had a policy with LBK Pty Ltd. Katerina makes a claim for damages against Georgi for injuries sustained in the accident.

XYZ Insurance is appointed as managing operator under a settlement sharing arrangement with LBK Pty Ltd. XYZ Insurance makes a payment in settlement of Katerina's claim. The settlement payment is divided among the 2 insurance policies issued by XYZ Insurance in equal proportions.

Therefore, half of the payment is treated as being made in settlement of a claim under Katerina's insurance policy and the other half as being made in settlement of a claim under Georgi's insurance policy.

XYZ Insurance later shares the overall settlement amount with LBK Pty Ltd.

6.90 For the purposes of Divisions 78 and 79, if a contributing operator issued one insurance policy that was subject to a settlement sharing arrangement, then the contributing operator's payment is treated as a payment or supply in settlement of a claim under the insurance policy issued by the contributing operator. [Schedule 11, item 18, section 80-25]

6.91 If the contributing operator issued more than one insurance policy that is subject to a sharing arrangement that relates to a particular accident or incident, the contributing operator's payment is treated as a payment or supply in settlement of claims under those insurance policies. Where there is more than one insurance policy the contributing operator's payment will be allocated in equal proportions to each of the policies. [Schedule 11, item 18, section 80-25]

6.92 As a payment or supply made by a managing operator under an insurance policy settlement sharing arrangement is treated as a payment or supply in settlement of a claim under an insurance policy, the managing operator may be entitled to a decreasing adjustment for the payment or supply. The managing operator applies the relevant Division 78 or 79 rules to determine its entitlement to a decreasing adjustment relevant to its insurance policies subject to the sharing arrangement.

6.93 If the managing operator was entitled to a decreasing adjustment on the payment or supply it made in settlement of a claim under the sharing arrangement, it may have an increasing adjustment if it receives a payment from a contributing operator under that arrangement. [Schedule 11, item 18, section 80-30]

6.94 The managing operator calculates its increasing adjustment by determining the managing operator's settlement amount using the method statement set out in subsection 80-30(2) and then applying this amount to the formula in subsection 80-30(1). The method statement in subsection 80-30(2) is similar to that of subsections 78-15(4) and 79-95(3) concerning settlement of a claim under an insurance policy or for compensation respectively, but includes modifications for the purposes of Subdivision 80-A. [Schedule 11, item 18, section 80-30]

Example 6.9

An amount of $550 is paid by XYZ Insurance to settle a claim made by Katerina. Katerina selected the premium for the policy on the basis that she is not entitled to claim an input tax credit for the premium. XYZ Insurance is entitlement to a decreasing adjustment of $50, which is one eleventh of $550.

Under a sharing arrangement, ABC Insurance Pty Ltd is to contribute 50% of the settlement amount. ABC Insurance Pty Ltd makes a contributing payment to XYZ Insurance of $275. XYZ Insurance has an increasing adjustment of $25 under section 80-30, which is one eleventh of $275.

6.95 Section 80-35 provides that Division 19 applies in relation to an increasing adjustment that a managing operator has under section 80-30, to account for changes in payments between the operators under the sharing arrangement. [Schedule 11, item 18, section 80-35]

Subdivision 80-B

6.96 Subdivision 80-B applies similar rules to those set out in Subdivision 80-A concerning an insurance policy settlement sharing arrangement, to payments or supplies made under a nominal defendant settlement sharing arrangement.

6.97 A nominal defendant settlement sharing arrangement is an arrangement between the operators of a CTP scheme where the claim being settled is against a driver that is not covered under an insurance policy. For example, where a vehicle involved in an accident is uninsured. In some schemes, an entity referred to as a nominal defendant is responsible for the settlement of claims arising from the operation of uninsured vehicles. In New South Wales, claims made for payments of compensation against the Nominal Defendant are subject to sharing arrangements. The GST dictionary has been amended to refer to the definition of a nominal defendant settlement sharing arrangement, which has the meaning given in subsection 80-40(1). [Schedule 11, item 18, subsection 80-40(1); item 37, section 195-1]

6.98 The remaining provisions within subsection 80-40(1) in respect of a nominal defendant settlement sharing arrangement, are similar in nature to the provisions in subsection 80-5(1) in respect to an insurance policy settlement sharing arrangement, including similar definitions for managing operator, contributing operator, managing operator's payment or supply and contributing operator's payment. [Schedule 11, item 18, section 80-40]

6.99 Section 80-45 ensures that the rules within Subdivision 80-B apply only in relation to the sharing of a settlement of a claim because the driver involved was not covered by an insurance policy. If the accident or incident, that leads to a sharing arrangement, also involves drivers who are covered by insurance policies, then Subdivision 80-C concerning a hybrid settlement sharing arrangement applies. [Schedule 11, item 18, section 80-45]

6.100 Section 80-50 ensures that, despite section 9-5, no taxable supply arises for an entity entering into, or becoming a party to a nominal defendant settlement sharing arrangement, or becoming party to an industry deed for sharing purposes created by or under a State law or Territory law establishing a CTP scheme. This section is similar to section 80-10. [Schedule 11, item 18, section 80-50]

6.101 Section 80-55 has the same effect as section 80-15 in relation to an insurance policy settlement sharing arrangement. That is, the contributing operator's payment under a nominal defendant settlement sharing arrangement is not treated as consideration for a supply made by the managing operator, or for an acquisition made by the contributing operator. [Schedule 11, item 18, section 80-55]

6.102 For the purposes of Division 79, both a managing operator's payment or supply and a contributing operator's payment are treated as a CTP compensation payment or supply. A CTP compensation payment or supply is defined in subsection 79-35(2). [Schedule 11, item 18, sections 80-60 and 80-65]

6.103 Under section 80-70, the calculation of an increasing adjustment that a managing operator has as the result of payments it receives from contributing operators under a nominal defendant settlement sharing arrangement, is undertaken in a similar way to the calculation for a managing operator under an insurance policy settlement sharing arrangement to which section 80-30 applies. [Schedule 11, item 18, section 80-70]

6.104 Section 80-75 provides that Division 19 applies in relation to an increasing adjustment that a managing operator has under section 80-70, to account for changes in the payments between the parties under the nominal defendant settlement sharing arrangement. This section has similar application to that of section 80-35 concerning an insurance policy settlement sharing arrangement. [Schedule 11, item 18, section 80-75]

Subdivision 80-C

6.105 Subdivision 80-C extends Subdivisions 80-A and 80-B to apply to payments or supplies made under a hybrid settlement sharing arrangement. A hybrid settlement sharing arrangement is defined within subsection 80-80(1) and the GST dictionary has been amended to make reference to that definition. [Schedule 11, item 18, subsection 80-80(1); item 31, section 195-1]

6.106 A hybrid settlement sharing arrangement has elements of both an insurance policy settlement sharing arrangement and a nominal defendant settlement sharing arrangement. This will involve the sharing of payments or supplies that are made by an operator in settlement of a claim arising from an accident involving a combination of a driver, or owner, of a vehicle that is not covered by an insurance policy, and a driver, or owner, of a vehicle that is covered by an insurance policy. A hybrid settlement sharing arrangement extends to arrangements that involve operators from different CTP schemes, such as when an operator in a State scheme is part of an arrangement in respect of a particular accident with an operator of a different State scheme. [Schedule 11, item 18, subsection 80-80(1)]

6.107 The remaining provisions within section 80-80 concerning a hybrid settlement sharing arrangement are similar to the provisions in sections 80-5 and 80-40 that apply in relation to an insurance policy settlement sharing arrangement and a nominal defendant settlement sharing arrangement. This includes similar definitions for managing operator, contributing operator, managing operator's payment or supply and contributing operator's payment. [Schedule 11, item 18, section 80-80]

6.108 Where an accident or incident invokes a hybrid settlement sharing arrangement, the arrangement is initially treated as an insurance policy settlement sharing arrangement to which the rules in Subdivision 80-A apply. This permits the operator representing the uninsured owner or driver, to be treated for the purposes of the sharing arrangement, as though it held an insurance policy for that driver or owner. As a result, the operator is able to determine the amount of the payment it has to make under the insurance policy settlement sharing arrangement. Once that amount is determined, the operator shares the amount under a nominal defendant settlement sharing arrangement. [Schedule 11, item 18, section 80-85]

6.109 Section 80-90 applies in the circumstances where an entity is simultaneously the managing operator of a hybrid settlement sharing arrangement and the managing operator of a nominal defendant settlement sharing arrangement. In this situation, the entity responsible for the driver or owner who was not covered by an insurance policy, acts as the managing operator for the insurance policy settlement sharing arrangement. In practice, this means that the operator will settle any claims arising from the accident or incident, and then collect payments from other contributing operators that had drivers or owners involved in the accident and are therefore subject to the sharing arrangement. The operator will then share the net payment with other operators under a nominal defendant settlement sharing arrangement. [Schedule 11, item 18, section 80-90]

6.110 Section 80-95 deals with the reverse situation to which section 80-90 applies. The operator responsible for the driver or owner that was not covered by an insurance policy acts as a contributing operator under an insurance policy settlement sharing arrangement, and then shares the amount it has paid under that arrangement under a nominal defendant settlement sharing arrangement. [Schedule 11, item 18, section 80-95]

6.111 It does not matter whether the operator representing the uninsured driver or owner is required to be the managing operator or a contributing operator under a hybrid settlement sharing arrangement, it will always determine the amount paid, or net payment, under the insurance policy settlement sharing arrangement before it shares the amount under a nominal defendant settlement sharing arrangement.

Example 6.10

Greg, Dan and Sam had a motor vehicle accident. Greg has a CTP insurance policy with XYZ Insurance and Dan has a CTP insurance policy with ABC Insurance Pty Ltd. Sam was driving a vehicle that was not covered by an insurance policy. Under the CTP scheme, LBK Pty Ltd is appointed as the representative of the driver without an insurance policy. All the operators are subject to a settlement sharing arrangement. Dan makes a claim against Greg and notifies XYZ Insurance of the claim.

LBK Pty Ltd is contributing operator

XYZ Insurance is appointed as the managing operator for the purposes of the hybrid settlement sharing arrangement.

XYZ Insurance accept the claim made by Dan and make a payment in settlement of the claim. Subject to the rules in Subdivision 80-A, the payment is a managing operator's payment or supply. Having determined that it is entitled to do so, XYZ Insurance claims a decreasing adjustment using Greg's input tax credit entitlement information, in relation to the settlement.

XYZ Insurance receives a payment representing one third of the settlement amount from each of ABC Insurance Pty Ltd and LBK Pty Ltd. XYZ Insurance has an increasing adjustment in relation to those payments, calculated in accordance with section 80-30.

ABC Insurance Pty Ltd and LBK Pty Ltd each determine that they are entitled to a decreasing adjustment in relation to the contributing operator's payment they have made to XYZ Insurance as the managing operator. ABC Insurance Pty Ltd calculates its decreasing adjustment using Dan's input tax credit entitlement information. LBK Pty Ltd applies the average input tax credit fraction for the CTP scheme to its calculation of the decreasing adjustment.

LBK Pty Ltd will now, subject to the rules in Subdivision 80-B, share the payment it made to XYZ Insurance, with all of the operators within the CTP scheme that are subject to a nominal defendant settlement sharing arrangement. For each payment LBK Pty Ltd receives from another operator, it will have an increasing adjustment calculated in accordance with section 80-70.

LBK Pty Ltd is managing operator

If LBK Pty Ltd had been the managing operator for the hybrid settlement sharing arrangement, it would settle the claim made by Dan and claim a decreasing adjustment in relation to the settlement payment. LBK Pty Ltd would use the average input tax credit fraction for the CTP scheme in the calculation of its decreasing adjustment.

Applying the rules under Subdivision 80-A, LBK Pty Ltd would have an increasing adjustment for each contributing operator's payment received from XYZ Insurance and ABC Insurance Pty Ltd. The increasing adjustments are calculated in accordance with section 80-30.

The net amount that LBK Pty Ltd has paid as managing operator of the hybrid settlement sharing arrangement, is subject to the rules under Subdivision 80-B, shared with all of the operators that are subject to a nominal defendant settlement sharing arrangement. LBK Pty Ltd will have an increasing adjustment calculated in accordance with section 80-70 for each amount it receives from a contributing operator.

Miscellaneous

6.112 Division 72 concerns the application of GST to supplies made between associates that are made for no consideration or for inadequate consideration. Subsection 72-5(3) operates to exclude from the operation of Division 72, a supply that is constituted by an insured entity settling a claim under an insurance policy. Subsection 72-40(3) operates so that an acquisition that is made for no consideration from an associate is not prevented from being a creditable acquisition. Subsections 72-5(3) and 72-40(3) are amended so that they apply to the relevant payments or supplies made under CTP schemes. [Schedule 11, item 12, subsection 72-5(3); item 13, subsection 72-40(3)]

6.113 Section 188-22 ensures that in working out an entity's current annual turnover or projected annual turnover, the entity disregards any supply it has made to the extent that the consideration for the supply is a payment or supply in settlement of a claim under an insurance policy. This section has been amended to extend its application to payments or supplies that are a CTP dual premium or election payment or supply, CTP hybrid payment or supply or a CTP compensation or ancillary payment or supply. [Schedule 11, item 19, paragraph 188-22(a)]

6.114 Section 9-39 is amended to include item 3A to acknowledge Division 79 and to include item 8B to acknowledge Division 80 in the table of special rules relating to taxable supplies. [Schedule 11, item 1, section 9-39; item 2, section 9-39]

6.115 Section 9-99 is amended to include item 2A to acknowledge Division 79 in the table of special rules relating to the amount of GST on taxable supplies. [Schedule 11, item 3, section 9-99]

6.116 Section 11-99 is amended to include item 2A to acknowledge Division 79 and to include item 15 to acknowledge Division 80 in the table of special rules relating to acquisitions. [Schedule 11, item 4, section 11-99; item 5, section 11-99]

6.117 Section 17-99 is amended to include item 4AA to acknowledge Division 79 and to include item 12AA to acknowledge Division 80 in the table of special rules relating to net amounts or adjustments. [Schedule 11, item 6, section 17-99; item 7, section 17-99]

6.118 Section 19-99 is amended to include item 1AA to acknowledge Division 79 and to include item 3 to acknowledge Division 80 in the table of special rules relating to adjustment events. [Schedule 11, item 8, section 19-99; item 9, section 19-99]

6.119 Section 37-1 is amended to include item 8A to acknowledge Division 79 and to include item 29AA to acknowledge Division 80 in the check list of special rules. [Schedule 11, item 10, section 37-1; item 11, section 37-1]

6.120 A note has been placed within section 78-1 to signpost the existence of Divisions 79 and 80. [Schedule 11, item 14, section 78-1]

6.121 The GST dictionary has been amended to update the note to the definition of consideration to include a reference to those sections in Divisions 79 and 80 that affect the meaning of consideration. [Schedule 11, item 22, section 195-1]

6.122 The GST dictionary has been amended to update the definition of decreasing adjustment to include reference to adjustments arising under or in connection with Subdivisions 79-A, 79-B and Division 80. [Schedule 11, item 32, section 195-1]

6.123 The GST dictionary has been amended to update the definition of increasing adjustment to include reference to adjustments arising under or in connection with Subdivisions 79-A, 79-B and Division 80. [Schedule 11, item 33, section 195-1]

6.124 The GST dictionary has been amended to update the note to the definition of taxable supply to include a reference to those sections in Divisions 79 and 80 that affect the meaning of taxable supply. [Schedule 11, item 40, section 195-1]

6.125 The GST dictionary has been amended to update the note to the definition of value to include a reference to those sections in Division 79 that affect the meaning of value. [Schedule 11, item 41, section 195-1]

GST Transition Act

6.126 Under section 22 of GST Transition Act, the settlement of a claim does not give rise to an adjustment and is not a taxable supply under Division 78 of the GST Act to the extent that the event giving rise to the claim happened before 1 July 2000. Subsection 22 is amended so that it will apply in the same way to payments or supplies made in settlement of a claim to which Division 79 or 80 applies. [Schedule 11, item 42, section 22]

Application and transitional provisions

6.127 The amendments apply, and are taken to applied, in relation to the net amounts for tax periods starting on or after 1 July 2000. The application date ensures that operators in a CTP scheme are entitled to appropriate decreasing adjustments from 1 July 2000. [Schedule 11, item 43]