GST and adjustments for cancellation of compulsory third party insurance

Does the entity, a compulsory third party (CTP) insurer, have an adjustment under section 19-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when an existing CTP insurance policy is cancelled and a new policy is underwritten by the entity?

Yes, the entity does have an adjustment under section 19-40 of the GST Act, when an existing CTP insurance policy is cancelled and a new policy is underwritten by the entity.

The entity is a CTP insurer. The entity supplied CTP insurance to an owner of a motor vehicle. The supply of the CTP insurance policy was a taxable supply under section 9-5 of the GST Act. The entity has attributed the goods and services tax (GST) on the supply in an earlier tax period.

Under the relevant state legislation, there are limited circumstances in which a CTP insurance policy can be cancelled. These circumstances occurred part way through the CTP insurance policy period and the entity cancelled the policy. The entity refunded part of the original premium to the owner. The entity then entered into a new policy with the owner.

The entity has not made any other adjustments in relation to this supply of CTP insurance.

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

Under section 19-40 of the GST Act an entity has an adjustment for a supply for which it is liable for GST (or would be liable to pay GST if it were a taxable supply) if: • in relation to the supply, one or more adjustment events occur during a tax period, and • GST on the supply was attributable to an earlier tax period (or would have been attributable if the supply had been taxable), and • as a result of those adjustment events, the previously attributed GST amount for the supply no longer correctly reflects the amount of GST on the supply (taking into account any other adjustments under Subdivision 19-B of the GST Act or Division 21 of the GST Act).

Section 19-10 of the GST Act defines an 'adjustment event' as being any event which has the effect of: • cancelling a supply or acquisition; or • changing the consideration for a supply or acquisition; or • causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

The entity has cancelled the CTP insurance policy part way through the policy period. This is a cancellation of the entity's supply of CTP insurance and is an adjustment event under section 19-10 of the GST Act. Therefore, the first requirement in section 19-40 of the GST Act is satisfied.

The entity has already attributed the GST on the supply of the CTP insurance policy in an earlier tax period. As the cancellation occurred part way through the policy period, the entity refunded part of the premium to the owner. Therefore, the GST amount the entity originally attributed no longer reflects the amount of GST on the supply. As such, the remaining requirements in section 19-40 of the GST Act are satisfied.

The entity does have an adjustment under section 19-40 of the GST Act, when an existing CTP insurance policy is cancelled and a new policy underwritten by the entity. Note 1: As the entity refunded money to the owner, the correct GST amount is less that the amount previously attributed. Therefore, the entity will have a decreasing adjustment equal to the difference between the amount previously attributed and the correct GST amount (section 19-55 of the GST Act). Note 2: The new policy underwritten by the entity is a separate supply and not an adjustment event. The supply of the new policy will be a taxable supply where the requirements in section 9-5 of the GST Act are satisfied.