The states of New South Wales, Queensland, and Victoria are expecting to raise in excess of AUS $2.7 billion from insurance duty this financial year, making the insurance duty an important source of revenue for the states and territories.
Who pays insurance duty?
Typically, the insurer generally pays duty and passes the costs onto the insured; however, there are exceptions. In situations when an offshore insurer is not registered to pay insurance duty in the relevant Australian jurisdiction (as is often the case), the obligation to file (i.e., lodge) a return and to pay insurance duty falls on the insured party when obtaining, effecting or renewing any insurance.
The time frame for filing a return and paying insurance duty liability can be “tight.” Therefore, to avoid interest and penalty charges, any person who takes out an insurance contract to protect property or to cover risks located in Australia needs to consider whether there is an obligation to file and pay insurance duty—especially if:
- The person is insured by an offshore captive insurer
- The offshore parent company takes group insurance and the contract covers Australian subsidiaries and/ or operations; or
- The person is using an offshore broker to access the foreign insurance market
How is insurance duty calculated?
The amount of the insurance duty is calculated based on the “premiums” paid by the insured—i.e., the amounts provided to the insurer to effect the insurance (inclusive of Australian goods and services tax (GST)).
Each Australian jurisdiction imposes stamp duty at different rates depending on the type of insurance (e.g., general insurance or life insurance). The rates can be as high as 11%. It is possible to divide the premium across particular types of insurance and to apportion the premium across different jurisdictions if the insured “risk” is located in more than one Australian state or territory.
Assessment - there is no limitation
Whoever is liable to pay insurance duty must file an insurance duty return by the 21st day of the month and pay the appropriate duty, calculated based on the premiums received or paid during the preceding month.
Persons who are (or think they are) insured by a non-resident insurance company may want to seek Australian duty advice to verify that the insurance duty obligations are being met and to avoid the risk of any interest and penalties being imposed.
For more information, contact a KPMG tax professional in Australia: