GST and supply by resident insurance broker to a non-resident underwriter

Is the entity, an Australian resident insurance broker, making a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies its services to a non-resident underwriter?

Yes, the entity is making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when it supplies its services to a non-resident underwriter.

The entity is an Australian resident insurance broker. The entity is supplying services to a non-resident underwriter.

The entity provides the non-resident underwriter with details of potential Australian clients. After the underwriter accepts the risk, it faxes the entity the premium calculation. After the Australian client accepts the premium, the entity faxes a confirmation to the underwriter. The underwriter then issues the Australian client with a certificate of cover, signed and issued by the underwriter outside Australia. The cover is not directly connected to real property situated in Australia.

The entity collects the premium from the Australian client and banks the money into its trust account. The entity arranges payment of all Government charges.

When claims are made the entity forwards all details of the claim to the non-resident underwriter, and where necessary appoints an assessor. Once all facts are known, it is the underwriter, not the entity, that admits liability. Where claims are less than a specified sum, the entity pays them out of the premium money collected and forwards the remainder to the underwriter.

The entity receives a commission from the underwriter for these services. The underwriter is not in Australia at the time that these services are provided and does not have a representative in Australia.

The entity is registered for goods and services tax (GST).

Under section 38-190 of the GST Act, certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. As the entity is supplying services and not goods or real property, it is appropriate to consider section 38-190 of the GST Act in relation to this supply.

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done, is GST-free where: • the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or • the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

The non-resident underwriter is not in Australia when the entity makes its supply of services. In addition, the non-resident underwriter does not have a representative in Australia. The entity is supplying the non-resident underwriter with services that involve the provision of information and the management of the underwriter's clients' cover. This is not a supply of work physically performed on goods situated in Australia nor is it directly connected with real property situated in Australia. Therefore, the entity's supply meets the requirements in Item 2.

However, subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if: • it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and • the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

The entity's supply is under an agreement entered into with a non-resident insurance broker. Therefore, it needs to be determined whether the supply is provided, or is required to be provided, to an entity in Australia. Although the entity is providing information in relation to the Australian client and is managing the Australian client's cover, the entity is providing its services and information to the non-resident underwriter. Therefore, the entity is not providing its supply to an entity in Australia and subsection 38-190(3) of the GST Act does not exclude the entity's supply from being GST-free under Item 2.

As such, the entity is making a GST-free supply under Item 2 when it supplies services to a non-resident underwriter.

[Note: The GST status of the supply by the entity to the Australian client is discussed in ATO ID 2002/1044.]