STAMP DUTIES (INSURANCE) AMENDMENT BILL

Introduction and First Reading

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Federal/State Relations, Minister for Defence Industries) (12:00): Obtained leave and introduced a bill for an act to amend the Stamp Duties Act 1923. Read a first time.

Second Reading

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Federal/State Relations, Minister for Defence Industries) (12:00): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The Bill makes a number of amendments to the insurance provisions of the Stamp Duties Act 1923 (the 'Act').

At the time of the introduction of the Goods and Services Tax (GST), explicit provisions were inserted in the relevant legislation enabling the GST on compulsory third party (CTP) and general insurance premiums to be calculated on premiums exclusive of stamp duty.

These provisions were inserted to avoid a cascading of stamp duty and GST (both of which are applied to insurance premiums). The GST provisions were intended to clarify that while GST would be calculated on stamp duty exclusive premiums, stamp duty under State stamp duty law would be calculated on GST inclusive premium amounts.

The insurance duty provisions in the Act are drafted differently to interstate provisions, a difference which in recent times has cast some doubt over whether the Commonwealth legislation is effective to prevent GST being charged on stamp duty inclusive premiums. Amendments in this Bill will therefore put this matter beyond any doubt.

The opportunity has also been taken in the Bill to address a number of other issues that will simplify the administration of the insurance duty provisions.

The stamp duty rate for general insurance will change from being charged at $11 per $100 or fractional part of $100 of premiums received to a fully proportional rate of 11 per cent of premium revenue received.

Similarly the stamp duty rate for life insurance will change from being charged at $1.50 per $100 or fractional part of $100 of premium revenue received to a fully proportional rate of 1.5 per cent of premium revenue received.

The Bill also introduces general refund provisions in relation to stamp duty charged on insurance premiums to allow for easier and more equitable access to refunds than is currently available.

These amendments are consistent with representations that have been made to RevenueSA by the Insurance Council of Australia and others through RevenueSA's State Taxes Liaison Group to improve administration and will also increase consistency with interstate provisions.

The Bill also amends the insurance provisions of the Act to make it clear that riders attached to life insurance policies are dutiable at general insurance rates.

Life insurers have traditionally offered other insurance products known as 'riders' which cover such risks as trauma, a disabling or incapacitating injury, sickness condition or disease.

RevenueSA have always been of the view that the life insurance riders are properly characterised as general insurance under the Act and are therefore dutiable at the higher general insurance rate.

Whilst a large proportion of the industry have complied with this view, some sections of industry have over time disputed this interpretation and asserted that riders should be chargeable at the lower life insurance rate.

In 2007, objections were lodged by four insurance companies against assessments of the Commissioner of State Taxation. The objections were disallowed by the Treasurer and were then appealed to the South Australian Supreme Court.

The appeals were heard in April 2010 and on 25 August 2010, the Court found in favour of the Commissioner of State Taxation and dismissed all four appeals. The Appellants have now appealed to the Full Court of the Supreme Court of South Australia.

Each of the Appellants contends that life insurance riders should be properly characterised as life insurance, and that the entirety of the premiums paid in respect of these policies are therefore dutiable at the lower life insurance rate.

Other major insurance businesses have continued to pay duty at general insurance rates on these types of insurance.

The Bill will operate to prevent a revenue loss of up to $17 million per annum ongoing in the event that the appeal to the Full Court is successful.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

The clause provides for the commencement of the measure on a day to be fixed by proclamation.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Stamp Duties Act 1923

4—Substitution of Part 3 Division 3

This clause repeals Division 3 of Part 3 of the Stamp Duties Act 1923 and substitutes a new Division.

Division 3—Insurance

Subdivision 1—Interpretation

32—Interpretation

This section provides definitions of terms used in Division 3. A number of terms are carried over from the repealed Division.

A general insurer is an insurer who carries on insurance business in respect of insurance that is not life insurance. A life insurer is an insurer who carries on insurance business in respect of life insurance. Insurance business is defined to mean—

the granting or issuing of life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other insurance; or

the acceptance, either directly or indirectly, of any premium, renewal premium or consideration for, or in respect of, the granting or issuing or keeping alive or in force of life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other insurance; or

the receiving of a letter or declaration of interest attaching to a policy of insurance issued in this State or elsewhere; or

the carrying out, by means of insurance effected out of this State, of a contract or undertaking to effect insurance, whether formal or informal and whether express or implied.

The definition of premium, carried over from the repealed Division, is altered to make it clear that 'premium' includes a part of a premium.

Subsection (2) makes it clear that a reference to a premium paid, payable, received, charged or credited in relation to life insurance, or in relation to insurance of another kind, is a reference to the premium being paid, payable, received, charged or credited to the extent that the premium related to insurance of the kind referred to.

Subdivision 2—Registration and payment of duty

33—Registration

Section 33 requires an insurer who carries on insurance business in South Australia to be registered under Division 3.

34—Lodgement of statement and payment of duty—general insurance

Section 34 provides that a general insurer is liable to pay duty in respect of each premium relating to insurance of any kind other than life insurance paid to the insurer. A general insurer is therefore required to lodge a statement with the Commissioner each month setting out the total amount of all premiums relating to general insurance received by the insurer in the previous month. The insurer may also choose to include in the statement the total amount of premiums that have been credited to an account of the insurer but not received in the previous month. (If a premium that has been credited but not received is not included in the statement for the month in which it was credited, the section requires the insurer to include the premium in the statement lodged for the month in which it was received or, if it has not been received within 12 months, in a statement lodged following the end of that 12 month period.) The insurer is also required to pay to the Commissioner duty equivalent to 11 per cent of the total amount included in a monthly statement.

35—Lodgement of statement and payment of duty—life insurance

Section 35 is similar to section 34 but provides for the payment of duty by a life insurer in respect of all premiums paid to the insurer for life insurance. This section requires the insurer to lodge a statement on or before 31 January each year setting out the total amount of all premiums relating to life insurance paid to the insurer in the previous calendar year. The insurer may also choose to include in the statement the total amount of premiums that have been credited to an account of the insurer but not received in the previous year. (If a premium that has been credited but not received is not included in the statement for the year in which it was credited, the premium will be taken to have been received in the following calendar year.) The insurer is also required to pay to the Commissioner duty equivalent to 1.5 per cent of the total amount included in the statement.

Subdivision 3—Exempt insurance

36—Certain premiums exempt from duty

This section provides that the following are exempt from duty:

a premium received or charged in respect of reinsurance;

a premium received or charged under a private guarantee fidelity insurance scheme promoted amongst and sustained solely for the benefit of the officers and servants of a particular public department, company, person or firm and not extended, either directly or indirectly, beyond such officers and servants;

a premium received or charged under a scheme referred to in the above paragraph promoted amongst and sustained solely for the benefit of the officers and members of a friendly society or branch thereof and not extended, either directly or indirectly, beyond such officers and members;

a premium received or charged for life insurance in respect of investment and not in respect of a risk insured by the policy under which the premium is paid;

a premium received or charged in respect of a life or personal accident insurance risk where the principal place of residence of the insured person is in the Northern Territory and the policy under which the premium is paid is registered in a registry kept in the Northern Territory pursuant to the Life Insurance Act 1995 of the Commonwealth;

a premium received or charged under a policy of workers compensation insurance where the premium is referable to insurance against liability to pay workers compensation in respect of workers under the age of 25 years;

a premium received or charged under a policy of insurance by a body registered under Part 4-3 of the Private Health Insurance Act 2007 of the Commonwealth where the premium is referable to insurance against medical, dental or hospital expenses;

a premium received or charged in respect of life insurance providing for the payment of an annuity to the person insured;

a premium received or charged in respect of the insurance of the hull of a marine craft used primarily for commercial purposes or in respect of the insurance of goods carried by railway, road, air or sea or of the freight on such goods.

Subdivision 4—General

37—Denoting of duty

This section provides that the duty paid in connection with a statement lodged with the Commissioner as required under the Division must be denoted on the statement.

38—Duty in respect of policies effected outside South Australia

This section is substantially the same as current section 42AA. However, whereas section 42AA provides that the section does not apply to a policy of life insurance, the section as recast does not apply to a policy of insurance if the only insurance provided under the policy is life insurance or to a premium paid to an insurer in respect of life insurance. The section will therefore apply to policies of insurance that relate to both life insurance and other kinds of insurance and, by virtue of section 32(2), to premiums payable in respect of life insurance to the extent that they also relate to other kinds of insurance. The section provides for the payment of duty in relation to policies obtained, effected or renewed outside the State that are wholly or partly in respect of property in South Australia, or in respect of a risk, contingency or event occurring in South Australia, by a company, person or firm that is not required to be registered under section 33.

39—Insurers not required to be registered

Section 39 is similar to current section 42AB. The section as recast authorises the Commissioner to enter into agreements with insurers who are not required to be registered. Under such an agreement, the Commissioner would approve the insurer for the purposes of the section and the insurer would undertake to pay duty as if the insurer were registered.

40—Duty payable on acquisition of insurance business

Section 40, which is similar to current section 38, provides for the payment of duty by a company, person or firm that acquires contractual rights and obligations of, or in connection with, the insurance business of some other company, person or firm. The acquiring company, person or firm is liable to pay to the Commissioner the amount of any unpaid duty in respect of premiums paid to the other company, person or firm after the end of the period in respect of which such duty was last paid by the other company, person or firm.

41—Refunds

Section 41 provides that certain payments are to be taken to be overpayments of tax for the purposes of Part 4 of the Taxation Administration Act 1996:

duty paid in respect of an amount of premium that has been refunded;

duty paid in respect of a premium credited to an account of an insurer but not received by the insurer at the time the duty is paid if the policy in respect of which the premium was credited is cancelled before the insurer receives the premium.

This means that the refund provisions of the Taxation Administration Act 1996 will apply in relation to the overpayment.

5—Amendment of Schedule 2—Stamp duties and exemptions

This clause amends Schedule 2 of the Act to remove clauses 1 and 12. These clauses set out the rates of duty payable under the current provisions. Clause 1 also includes exemptions that are now to be incorporated within Part 3 Division 3.

Schedule 1—Transitional provision

1—Transitional provision

The transitional provision provides that an insurer that is licensed under Part 3 Division 3 of the Stamp Duties Act 1923 immediately before the repeal of that Division will be taken to be registered for the purposes of Part 3 Division 3 of the Act as inserted by that section.

Debate adjourned on motion of Mr Griffiths.