Goods and Services Tax Industry Issues
Insurance Industry Partnership

Layered policies where some of the underwriters are offshore entities

• Please note that the PDF version is the authorised version of this ruling.
  This publication is extracted from the Insurance Industry Partnership - issues register. See issue 20 of that register. This publication should be read in conjunction with the related content of that register where further context is required.

This publication provides you with the following level of protection: This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Issue

1. For layered policies there may be several underwriters providing cover for one of the layers. For example, there may be three underwriters for the $1 million to $5 million layer discussed in the previous issue. Does Division 96 apply?

2. Generally, the underwriters are severally liable for the percentage of the cover they are providing. For example, if each of the three underwriters discussed above takes 1/3 of the cover, each is separately liable for its third. If one of the underwriters is unable to meet its obligations, there is generally no recourse to the other two underwriters. Occasionally, the underwriters will be jointly and severally liable, in which case there will be recourse to the other two underwriters.

ATO view

3. For Division 96 to apply, there has to be a single supply. Where the underwriters are not jointly liable, we consider that each underwriter is making a separate supply of cover to the extent that it is providing cover for that layer. Continuing the example, each of the three underwriters would be making a supply of cover of 1/3 of the risk for the $1 million to $5 million layer. Each supply would be examined to determine whether it is connected with Australia. Division 96 would not apply.

4. If, however, the underwriters are jointly liable, there would only be a single supply. Does Division 96 apply? Subsection 96-5(1) provides that Division 96 applies if the supply is a mixed supply and is a mixture of any two or more of the following:

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a supply of goods,

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a supply of real property,

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a telecommunications supply,

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a supply of anything other than goods or real property that is not a telecommunications supply.

5. The supply of risk cover by the underwriters is not a supply of goods, it is not a supply of real property, it is not a telecommunications supply. It is a supply of anything other than goods or real property that is not a telecommunications supply. It is only one of the types of supply listed in subsection 96-5(1), not a mixture of them. Division 96 does not apply.

References