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Legislative Council - Fifty-Second Parliament, First Session (52-1)
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STAMP DUTIES (INSURANCE) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 22 March 2011.)

The Hon. R.I. LUCAS (15:47): I rise on behalf of the Liberal Party to support the second reading of the Stamp Duties (Insurance) Amendment Bill. It passed through the House of Assembly in a relatively expeditious manner without proposed amendments and without extensive debate or discussion. Certainly, from the Liberal Party's viewpoint in a brief second reading contribution, I think, one question from me to the government is, at this stage anyway, the extent of our proposed engagement in debate on this particular bill.

It is relatively simple. It seeks to achieve two or three major changes. In the first instance, at the time of the introduction of the goods and services tax around about 10 years ago now, I guess—2001, I think it was—there were explicit provisions inserted in the legislation enabling the GST on general insurance premiums to be calculated on premiums exclusive of stamp duty. The provisions were inserted in that way to avoid a cascading of stamp duty and GST, both of which are applied to insurance premiums.

So, the scheme that had been agreed to was that 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 latter part of that sentence is important as well, because members over the years, I am sure, have had complaints about double duty and doubling up; that the state stamp duty is calculated on the GST-inclusive premium amount, and that is the case in relation to state stamp duty.

You might occasionally receive complaints, when someone gets state stamp duty on the purchase of a car or a vehicle or something like that, that you pay your state stamp duty on the GST-inclusive amount for that particular good. I guess, my explanation about that over the years has been that it was ever thus. When we had the wholesale sales tax to the value of the car, the state stamp duty was always calculated on the wholesale sales tax-inclusive price of the car or the good. When the GST was introduced, it was done in exactly the same fashion. There is a valid question of policy as to, 'Aren't you therefore still getting more stamp duty than you would otherwise if you didn't do it that way?' The answer to that is: yes, you are getting more state stamp duty, and that is part of the policy decision and structure of budgets over many decades.

I am not sure exactly when it started but, as I said, it was ever thus. In relation to state stamp duty, budgets have been structured in that way to collect that amount of stamp duty premium. If you change the policy decision to say, 'All right, we won't do it on GST-inclusive for premium,' if state governments wanted to get the same amount of money they would just ratchet up the state stamp duty rate to plough it through the sausage machine and churn out the appropriate rate to still collect the total amount of state stamp duty revenue. It is an issue of policy, but it has been that way.

It has not been entirely clear, and we have not had, or I have not seen, the detailed legal advice that has been made available to the government. The government has obviously had a view put to it at some stage by its own lawyers, I assume, that, because our provisions are drafted somewhat differently from other states, therefore we ought to put this beyond doubt in some way and make some changes to make clear that the current practice will continue or, as the second reading states (and one of parliamentary counsel's favourite phrases), 'It will therefore put this matter beyond any doubt.' That is one of the major reasons for the legislation.

Then there is a grab-bag of smaller changes. The second reading states that the opportunity has been taken to address a number of other issues. I am comforted by the fact that, unlike on some other occasions, the government has advised that these amendments were consistent with representations that had been made to RevenueSA, in the first instance by the Insurance Council of Australia but, in particular, through RevenueSA's state taxes liaison group. As previously debated, this is a group of professionals who provide advice to the government in relation to state tax law, and the government has advised that these changes have gone through this group.

Some of the minor changes are, for example, to the stamp duty rate for general insurance, which will change from being charged at $11 per $100, or fractional part of $100 of premium received, to a fully proportional rate of 11 per cent of premium rate of revenue received. That makes it quite clear that it is a fully proportional 11 per cent; for example, if you just happen to be over the $100 the 11 per cent is only charged on the amount that is above the $100. There are some other changes along those lines as well which, again, the opposition supports.

The final major part of the bill is that, as the second reading states, it 'amends the insurance provisions of the act to make it clear that riders attached to life insurance policies are dutiable at general insurance rate'. I note that the House of Assembly debate does occasionally slip into 'writers' as opposed to 'riders'. That has not been corrected in the Hansard by the respective members so, for the benefit of Hansard, we are talking about life insurance riders.

Life insurance riders, as the second reading explanation points out, are other insurance products that cover such risks as trauma, a disabling or incapacitating injury, a sickness, a condition or disease. You might have a life insurance policy, and you would have a rider to that particular policy for which you would pay an additional premium but for which you would get an additional insurance benefit. So, instead of just a life insurance benefit, you would get a benefit for which you had paid extra for one of these riders or options. I guess the simple explanation would be an additional option in terms of additional insurance product added to it.

As the second reading explanation makes clear, RevenueSA for a long time has always been of the view that life insurance riders are properly characterised as general insurance under the act and are therefore dutiable at the higher general insurance rate. There has always been this policy decision taken—and the minister explained it started in the UK, but certainly in Australian jurisdictions—where we have sought to encourage people to take out life insurance, and the stamp duty on life insurance was at a much lower rate than for general insurance. So, the issue of whether you apply stamp duty at the general insurance rate or the life insurance rate is obviously a significant issue in relation to this particular area.

RevenueSA's view has always been that, and they say they have always operated that particular way. Their argument is that a large proportion of the industry has complied with this view, but some sections of the industry have, over time, disputed this interpretation and asserted that riders should be charged with the lower life insurance rate. One of the questions I asked in the briefing (which I put again on the record and ask the minister to answer on the record—it is answered later in the second reading explanation that four insurance companies have lodged objections) was how many other insurance companies have accepted, grudgingly or not, the RevenueSA view?

What percentage of the number is the four insurance companies? The minister's advisers were able to give us—and I have asked to place it on the record—a ballpark estimate of the relative size of these companies in this particular area; that is, are these four insurance companies likely to be 70 per cent of the market in this area, only 20 per cent, or 10 per cent? Some sort of ballpark figure would give us an indication of the size and significance of these particular four insurance companies.

The second reading explanation states that in 2007 objections were lodged by the 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.

I have a question in relation to that: have the costs been awarded against the four insurance companies, or has the decision on costs been reserved at this particular stage? Does the government have a current estimate of the cost of fighting these particular cases thus far in the Supreme Court? In relation to those, because I have not asked those questions in the briefing, if the advisers do not have them I do not propose that we delay the debate. I am happy to accept an assurance from the minister that he is prepared to write to me providing an answer to that after the passage through the house.

The other question I have for the minister's advisers is that, as the appellants have now appealed to the Full Court of the Supreme Court of South Australia, if ultimately the decisions go against the four insurance companies, then there is no particular issue because the government would, assuming this legislation has passed, have confirmed the legality of all that has been and will be done. If, however, the insurance companies are successful in overturning the government's and the commissioner's position, can the minister outline what are the circumstances in that case and what does this bill say will occur?

My understanding—and it might be wrong and I ask for it to be clarified—is that, if the government loses the court case, this bill will obviously handle everything prospectively but in relation to respective provisions would not allow any other insurance company to say, 'Well, you were wrong; we now want a refund of state stamp duty that we have paid.'

So, in essence, the government might be proved to be wrong; the insurance companies win. My understanding of what we are supporting here is that, if that is the case, all the other insurance companies will not be able to retrospectively say, 'Hey, you were wrong. It was unlawful for you to tax us at that particular rate. We want a refund.'

However, my understanding is that the four insurance companies will be successful, I guess. I need to clarify whether they paid the stamp duty, and they will therefore need to be rebated, and what that level will be, or have they refused to pay the higher level of stamp duty? If they win the case, they therefore would not be required to pay the stamp duty in those circumstances. I am seeking from the government a clear indication of what the circumstances are if the case is won by the four insurance companies and the government was to lose.

With that, I indicate support for the bill. Other than a brief toing and froing in relation to those questions I have just put on the record, I do not propose to go into any detail until consideration of the clauses.

The Hon. B.V. FINNIGAN (Minister for Industrial Relations, Minister for State/Local Government Relations, Minister for Gambling) (16:01): I thank all honourable members for their contribution. I am not aware of anyone else who wants to make a contribution. I thank the Hon. Mr Lucas for his indication of support, and my advisers tell me that they will be able to provide some of the information he is looking for. However, if I may, I would rather deal with that in clause 1 because it is not in a written format at this time. I thank honourable members and I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. B.V. FINNIGAN: In relation to the question the Hon. Mr Lucas raised about insurance companies that are paying but have not contested, I am advised that there are 19. In relation to the four who have contested or have taken the action, I am advised that it amounts to 10 to 20 per cent of the total. In relation to potential refunds of duty if the court action is successful, I am advised that, indeed, there would need to be a refund of some of the duty paid, which would amount to around $12 million.

The Hon. R.I. LUCAS: Is that $12 million a year, or are we talking about $12 million total?

The Hon. B.V. FINNIGAN: I am advised that it is $12 million for the appeal period, which involves the four companies. If I can just put a rider, if I may use that term, I am obviously relying on the advice that has been provided as a pretty fast response to the Hon. Mr Lucas' query. So, I put on the record that, if further investigation or going through the figures more thoroughly indicates that there is more information or other information, or that the information I have given is not quite accurate then, of course, I undertake to inform the honourable member.

The Hon. R.I. LUCAS: I am happy to accept that assurance from the minister. Just to clarify, I take it from that last answer that the four companies have actually been paying the stamp duty at the rate that the Commissioner of Taxation is insisting on. Their challenge is that they should not have had to pay that, but they have and, if they are successful, the commissioner will have to repay the $12 million.

The Hon. B.V. FINNIGAN: I am advised that the companies did pay during the assessment period. They would have needed to in order to be able to lodge the appeal, but they have not been paying since the appeal was lodged.

The Hon. R.I. LUCAS: If therefore the case goes against the insurance companies, what is the estimate of the budget bonus or benefit if they have not been paying the appropriate rate since they lodged their appeal? They will obviously have to pay that into state tax if they are unsuccessful. What is the one-off budget benefit that those four insurance companies will have to pay?

The Hon. B.V. FINNIGAN: I am advised that we do not know the exact figure, but it is estimated to be between 10 and 20 per cent of the total. So, the maximum it could be, I am advised, is 20 per cent of $18 million per annum.

The Hon. R.I. LUCAS: The maximum amount, the government is saying, is potentially a budget benefit of $3.6 million?

The Hon. B.V. FINNIGAN: I am advised that $3.6 million per annum would be the correct figure if the case were to come down in favour of the government's position.

The Hon. R.I. LUCAS: Just to clarify, that is $3.6 million approximately per year. I understand that these are estimates. This has been going on since 2007-ish. We are into 2011-ish. We probably still have a fair bit to go in terms of this case. Are we talking about four years—four lots of potentially $3.6 million?

The Hon. B.V. FINNIGAN: I am advised that different insurers paid to different points before the appeals were lodged, so it is difficult to quantify what that sum would be.

The Hon. R.I. LUCAS: I would ask if the minister would be prepared to take it on notice to see whether, on advice, we could be given an estimate. In the end, if the letter comes back and says it is all too hard, fine, but it would surprise me if our very competent officers in RevenueSA could not come up with a figure for the government and for the parliament in relation to what the windfall benefit might be if we win the case.

The other question I would ask—which I would not expect the government's advisers to have answers to—that the minister might also take on notice is: what are the costs to the state thus far in terms of fighting this particular case through the courts?

The Hon. B.V. FINNIGAN: In relation to the first point, yes, I will undertake to try to obtain that information for the honourable member. I would caution him that it would be an estimated figure, because it would be difficult to get the precise sum at this time. In relation to the second point, the costs are unknown at this stage. The government is represented by the Crown but, again, I am happy to undertake to seek further information about that and respond to the honourable member. I will just highlight again on the record that we will, of course, review the information I have provided and ensure that it is entirely accurate.

The Hon. R.I. LUCAS: I want to clarify about the position in relation to other insurance companies. If the four insurance companies are successful, what we are doing in this legislation is saying to the other 19 that, if the court finds in favour of the four insurance companies and says that the government and RevenueSA was wrong, we are preventing those 19 companies from going back retrospectively and saying, 'You have levied us stamp duty at the wrong rate; we now want a repayment.'

The Hon. B.V. FINNIGAN: I am advised that the bill is prospective in operation but the way the current refund provisions work, those companies would not be able to recover what they have paid.

The Hon. R.I. LUCAS: I need to clarify that. The minister is saying, 'We are not doing anything in this bill, but the existing legislation already prevents the 19 companies, if there is a successful court decision, from going backwards and gaining benefit from it.' Is that a correct explanation of the position?

The Hon. B.V. FINNIGAN: I am advised that is correct.

Clause passed.

Remaining clauses (2 to 5), schedule and title passed.

Bill reported without amendment.

Third Reading

The Hon. B.V. FINNIGAN (Minister for Industrial Relations, Minister for State/Local Government Relations, Minister for Gambling) (16:12): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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