Tax treat
Insurance & Risk Professional, February 2009
Mistake or loophole, the NSW Duties Act provides an opportunity to recover stamp duty paid on some policies – but be quick
Policyholders may be entitled to a refund of stamp duty levied in New South Wales on general insurance taken out with general insurers which were not registered or authorised under the Insurance Act prior to June 20 2006. A refund may also be available for duty levied in other Australian jurisdictions on general insurance effected with such insurers.
Where an insurance premium is paid to an insurer who is not a registered or authorised general insurer the duty is normally paid by the placing broker on behalf of the insured, or in some cases directly by the insured.
In NSW, policyholders have a right to require the Chief Commissioner of State Revenue to assess or reassess the amount of duty paid in the five-year period immediately prior to the date on which the request is made.
If the commissioner declines to refund any alleged overpayment, that decision can be appealed to the Administrative Decisions Tribunal or the Supreme Court. Policyholders have similar rights in other jurisdictions.
Any policyholder who thinks they might be entitled to a refund should act promptly to preserve any right to that refund.
The NSW Supreme Court recently held that prior to June 20 2006 the state’s Duties Act 1997 did not impose duty on general insurance effected with organisations which were not registered or authorised as “general insurers” under the Insurance Act 1973.
In 2005 the Duties Act was altered so that it referred to “authorised” rather than “registered” general insurers, no doubt to more accurately follow the terminology of the Insurance Act.
In accordance with that finding, the court ordered that the Chief Commissioner of State Revenue for NSW refund to the taxpayer – in this case Qantas – stamp duty paid on general insurance effected with persons who were not registered or authorised as general insurers under the Insurance Act the amount of $5,154,166 plus interest.
The judgement does not identify the insurers or provide any information in relation to their structure or the nature of the markets in which they operated, except to say that they were “insurers outside of Australia” underwriting aviation risks.
In the period immediately prior to July 1 1998, duty was imposed under the Stamps Act 1920 (NSW) on organisations which effected general insurance, including those who were not registered or authorised as general insurers under the Insurance Act.
On July 1 1998, the Act was superseded by the Duties Act.
Section 236(2) of the new Act provided for an insured who effected general insurance with a person who was not a registered insurer under the Duties Act to lodge a return and pay duty to the Commissioner “within 21 days after the end of the month in which the premium relating to the insurance is paid to an [unregistered] insurer”. If no “premium” was payable to an “insurer”, no duty was payable.
General insurance is defined in section 230 of the Duties Act to mean insurance of any kind in relation to property in NSW and/or a risk, contingency or event concerning an act or omission that in the normal course of events, may occur within, or partly within, NSW.
Certain types of insurance are excluded from the definition, including life insurance, reinsurance, hull insurance and marine insurance.
Section 247 of the Duties Act defined a “general insurer” as satisfying three criteria, including that it was registered as a general insurer under the Insurance Act 1973. Relevantly, organisations which were not registered did not fall within the definition of “insurer” under the Duties Act.
In 2005 the term “registered” was replaced with “authorised”.
If an organisation was not registered or authorised as a general insurer under the Insurance Act as an “insurer”, then no premium was payable to an “insurer” and consequently no duty was payable.
On June 20 2006, the Duties Act was amended to clarify that, from that date, duty was payable on policies of general insurance effected with organisations which were not registered or authorised as general insurers under the Insurance Act.
In the period from August 1 2001 to March 31 2006, Qantas paid premiums on general insurance policies placed with organisations who were not registered or authorised as general insurers under the Insurance Act.
The commissioner issued Qantas with assessments for duty payable in the amount of $5,154,166 on the policies. Qantas objected to the assessments on the basis that no duty was payable.
The commissioner disallowed the objections and Qantas appealed that decision to the NSW Supreme Court.
The Commissioner submitted that:
• The definition of “insurer” in section 247 of the Duties Act did not apply to section 236 of the same Act;
• The term “insurer” in section 236 should be read as including organisations which were not registered or authorised as general insurers under the Insurance Act;
• Consequently, Qantas was liable to pay duty on the policies.
Acting Justice Handley rejected the commissioner’s argument, saying the Duties Act did not impose duty on general insurance effected with organisations which were not registered or authorised as general insurers under the Insurance Act in the period prior to 20 June 2006.
He ordered that the duty paid on the policies be refunded together with interest.
The commissioner has filed an appeal with the NSW Court of Appeal. The appeal is likely to be heard in the next few months with a decision expected later in the year.
The judge’s decision means that policyholders may be entitled to a refund of stamp duty levied in New South Wales on policies of general insurance effected with organisations which were not registered or authorised as general insurers under the Insurance Act in the period prior to 20 June 2006.
Refunds may also be available for duty paid in similar circumstances in other jurisdictions in which similar provisions were enacted.