Income derived by non-resident insurer: insurance for an Australian liability event and global properties

Is an insurance premium assessable under subsection 142(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where an insurance contract covers both a liability event that can only happen in Australia and properties that are situated within and outside of Australia, and there is no allocation of the premium between the liability event and the properties specified in the contract?

Yes. An insurance premium is assessable under subsection 142(1) of the ITAA 1936 where an insurance contract covers both a liability event that can only happen in Australia and properties that are situated within and outside of Australia, and there is no allocation of the premium between the liability event and the properties specified in the contract.

The following facts apply in respect of the insurance contract entered into by a non-resident insurer. (a) At the time of entering into the insurance contract, the insurance contract covers both a liability event that can only happen in Australia and properties that are situated within and outside of Australia. (b) The insurance contract does not allocate the premium between the liability cover and the properties that are situated within and outside of Australia. (c) The insurance contract is entered into outside Australia. (d) The requirements for the application of subsection 142(2) of the ITAA 1936 do not apply. (e) The policyholder is a non-resident of Australia.

Subsection 142(1) of the ITAA 1936 includes an insurance premium in the assessable income of a non-resident insurer if: • the insured properties are situated in Australia at the time of making the contract; or • the insured event is one that can only happen in Australia.

The conditions outlined in subsection 142(1) of the ITAA 1936 are expressed in the alternative by the use of the word 'or'. The application is conditional on only one of the two requirements being met.

The satisfaction of either requirement would bring the premium within subsection 142(1) of the ITAA 1936.

As Subsection 142(1) of the ITAA 1936 does not provide for apportionment of a premium under an insurance contract, there is no authority to attribute part of the premium to the properties that are situated outside of Australia.

Accordingly, a premium paid or payable on a policy where the insured event can only happen in Australia will be included in the assessable income of the non-resident insurer under subsection 142(1) of the ITAA 1936, irrespective of the fact that the policy also covers properties that are situated within and outside of Australia.