Important Notices

For your protection under legislation, we are required to inform you of your duty of disclosure and draw your attention to the following important information.

YOUR DUTY OF DISCLOSURE
Please note that in relation to policies that are not governed by the Insurance Contracts Act 1984 such as Marine Insurance (other than Marine Inland Transit Insurance) and insurance required by statute, the Insured still owes a Duty of Disclosure to the Insurer. This is a duty to disclose to the Insurer before the contract is concluded, every material circumstance, which is known to the Insured. Every circumstance is material that would influence the judgement of a prudent Insurer in fixing the premium or determining whether he will take the risk. The Insurer may avoid the contract from inception if the Insured fails to make such disclosure. In the case of insurance required by statute, such as Compulsory Third Party Motor Vehicle insurance, the Insurer may have rights of recovery against the Insured in the event of misrepresentation, misstatement or non-disclosure.

UTMOST GOOD FAITH
Every contract of insurance is subject to the doctrine of utmost good faith, which requires that the parties to the contract should act toward each other with the utmost good faith. Failure to do so on your part may prejudice any claim or the continuation of cover provided by Insurers.

SUBROGATION AND/OR HOLD HARMLESS AGREEMENTS
You may prejudice your rights with regard to a claim if, without prior agreement from your Insurers, you make any agreement with a third party that will prevent the Insurer from recovering the loss from that, or another party who would be otherwise liable.

Some policies contain provisions that either exclude the Insurer from liability, or reduce its' liability, if you have entered into any agreements that exclude or limit your rights to recover damages from another party in relation to any loss, damage or destruction that is the subject of a claim under the policy.

Examples of such agreements are the "hold harmless" clauses which are often found in leases, in maintenance or supply contracts from burglar alarm or fire protection installers and in repair contracts. If you are in doubt, please consult your Account Manager.

CLAIMS MADE DURING THE PERIOD OF INSURANCE
Your attention is drawn to the fact that some policies provide cover on a "claims made" basis which means that claims first advised to you (or made against you) and reported to your insurer during the Period of Insurance are recoverable irrespective of when the incident causing the claim occurred, subject to the provisions of any clause relating to a "retroactive date".

You should also note that, in terms of the provisions of Section 40(3) of the Insurance Contracts Act 1984, where you give notice in writing to the Insurer of facts that might give rise to a claim against you as soon as is reasonably practicable after you become aware of those facts (but before the insurance cover provided by the contract expires) then the Insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the Period of Insurance cover provided by the contract.

In order to ensure that any entitlement under the policy is protected, you must therefore report all incidents that may give rise to a claim against you to the Insurers without delay after such incidents come to your attention and prior to the expiration of the policy period.

CLAIMS OCCURRING PRIOR TO COMMENCEMENT
Your attention is drawn to the fact that your policies do not provide indemnity in respect of events that occurred PRIOR to commencement of the contract.

NOT A RENEWABLE CONTRACT
Cover under your policies terminates on the date shown or as indicated in the Insurance Advisory Service (NSW) Pty Ltd tax invoice or adjustment note.

Some policies are not renewable contracts. If you wish to effect similar insurance for any subsequent period, it will be necessary for you to complete a new proposal prior to the termination of the current policy so that terms of insurance and quotations can then be developed for your consideration.

APPLICATION OF GST ON INSURANCE POLICIES
In accordance with the "A New Tax System (Goods and Services Tax) Act 1999" (GST Act), insurance is deemed a taxable supply (ie, it is not GST-free). There are, however, particular classes of insurance that do not attract GST. These are:

• Travel Insurance - essentially where it involves the insurance of international travel;
• Certain Marine and Aviation Insurances;
• Private Health, Life & Ambulance Insurance;
• Insurance placed offshore, ie London or USA

For the majority of insurance policies issued, the Insurer has a liability to pay GST. This liability can be passed on to the Insured.

The ability for an Insured to claim any GST back from the Australian Taxation Office (ATO) as an Input Tax Credit (ITC) depends on the purpose for which the insurance is acquired and on the basis that the Insured's business is a registered entity, ie:

• Where the Insured is registered for GST, generally they will be entitled to claim an Input Tax Credit (ITC) for the GST paid.
• Where there is only part business use, the Insured will only be entitled to claim a part of the GST paid as an Input Tax Credit.
• Unregistered entities and individuals not in business will not be entitled to Input Tax Credits.
• Where the insurance relates to making input taxed supplies, the Insured will not be entitled to claim Input Tax Credits.
• An Insured's ability to claim Input Tax Credits on an insurance premium is of critical importance when it comes to the treatment of claim settlements.

THE AMOUNT OF GST PAYABLE
The consideration paid for an insurance policy consists of premium plus fire service levies (where applicable) and stamp duty.

In their current form, the GST regulations provide that GST is not payable in respect of stamp duty. Therefore, GST is applied to that part of the consideration (ie, total premium due for the policy of insurance) net of stamp duty. GST is payable on the fire services levy.

The GST payable is 1/11th of the GST inclusive price (net of stamp duty) or 10% of the GST exclusive price (net of stamp duty).

Example - application of GST on an insurance premium:

Premium $ 1,000.00
FSL (42%) $ 420.00
Subtotal $ 1,420.00
GST (10%) $ 142.00
Subtotal $ 1,562.00
Stamp Duty (10%) $ 156.20
Total Premium $ 1,718.20*

*Includes $142.00 GST.

DECLARATION OF SUMS INSURED
Insureds who are registered for GST purposes should evaluate their sums insured under each policy (and/or advise asset values, turnover etc where applicable) having taken into consideration the following:

• their entitlement to any ITC; and
• the fact that after an Insurer has paid a claim under a policy, the Insurer will generally be entitled to claim an ITC for the amount of GST that an Insured is unable to recover.

An Insured who is registered for GST should consider the net amount (after all ITCs have been taken into account) which is to be insured and advise the sums insured or asset values or turnover on a GST Exclusive basis.

An unregistered Insured who is wholly input taxed or a registered Insured who is partially input taxed will need to advise the sums insured or asset values or turnover on a GST Inclusive basis in addition to their precise taxable status.

INSURANCE CLAIMS AND THE APPLICATION OF THE POLICY EXCESS OR DEDUCTIBLE
Payment of an excess by an Insured is not treated as consideration for a taxable supply and is therefore not subject to GST.

INSURANCE CLAIMS AND GST
The treatment of settlements for GST purposes depends on whether or not the Insured is registered for GST and their entitlement to claim a full or partial Input Tax Credit on the premium paid.

Registered Insured
A registered Insured is entitled to an Input Tax Credit on a premium to the extent that it is acquired for a taxable purpose. If the Insured is entitled to an ITC in respect of the premium, it must notify the Insurer of the percentage that it is entitled to claim. This must be done on or before making the claim.

So long as the percentage notified by the Insured to the Insurer is correct, the Insured will have no GST liability on a settlement received under the policy.

Where the Insured is partially input taxed, the Insurer will be able to claim a decreasing adjustment on the settlement amount (using the Decreasing Adjustment Mechanism (DAM)) to the extent that the Insured was not entitled to an Input Tax Credit on the premium. For example, if the Insured was entitled to claim 85% of the GST paid on the premium, the Insurer would be entitled to claim as a decreasing adjustment, 1/11th of 15% of the gross amount of a settlement made under the policy.

In effect, the operation of the DAM ensures settlements made to registered businesses that can claim full Input Tax Credits will be for the "net of GST" price of the item insured.

Settlements where a registered business can claim a partial Input Tax Credit will be for an amount somewhere between the GST-exclusive and the GST inclusive price (depending on the entitlement).

Unregistered Insured
An unregistered Insured is not entitled to claim an Input Tax Credit on the premium and has no liability to pay GST on the settlement. The Insurer can claim a DAM adjustment equal to 1/11th of the gross payment made.

Settlements to non registered entities will be for the "GST-inclusive price" of the insured item.

It is important to note that an Insured is not liable to pay GST on claim payments, provided they have informed their Insurer as to their entitlement to an ITC on the premium paid on the policy (or their tax status). This must be done at (or before) the time of a claim.

The tax status is the percentage an Insured is entitled to claim as an Input Tax Credit for the GST on the premium paid on any policy. If the Insured is registered for GST, it is a requirement under the GST legislation for the Insured to advise its Insurer(s) of its ABN and tax status. Failure to do so may result in the Insured having a GST liability on any claim settlement made under any policy.

The level of an Insured's tax status is a matter to be determined by a professional tax adviser.

Below are examples of how the treatment of GST is applied to a claim.

Registered ABN Business
The Insured incurs $1,100 (including GST) property damage that is claimable under an insurance policy. The Insured has informed the Insurer of their ABN and a tax status of 100%.

1(a) The Insurer organises the replacement of property (a non-cash settlement).
- Insurer purchases $1,100 replacement property
- Insurer claims $100 GST from ATO.

1(b) The Insured organises the replacement of the property and claims reimbursement from the Insurer (a cash settlement).
- Insured buys $1,100 replacement property
- Insured claims $100 GST from ATO
- Insurer pays to the Insured $1,000.

1(c) The Insured is a registered business with a tax status of only 50%

The Insured organises the replacement of the property and claims reimbursement from the Insurer (a cash settlement).
- Insured buys $1,100 replacement property
- Insured can claim 50% of the GST (being $50) from the ATO
- Insurer pays to the Insured $1,050
- Insurer claims 50% of the GST from the ATO (being $50) with the implementation of DAM.

Unregistered Business (Private Individual)
The Insured incurs $1,100 property damage (including $100 GST) that is claimable under an insurance policy.
- Insurer purchases $1,100 replacement property
- Insurer claims $100 GST from ATO

IMPORTANT NOTE
The rule is that the registered entity that receives a supply is the one entitled to an Input Tax Credit in relation to the supply. Thus Input Tax Credits could be "lost" if settlements are not handled correctly. For this reason it is reasonable to assume that there are only two basic types of settlement that are possible under GST:

(a) Cash settlements paid directly to the Insured (or in the case of a non registered Insured, to a third party on behalf of the Insured),
(b) Settlement by replacement where the Insured contracts directly with someone to replace insured property and is billed directly.

Our advice to you regarding the application of GST on general insurance policies is offered in our capacity as Insurance Brokers. The level of your Tax Status as a business registered for GST is a matter to be assessed by your professional taxation adviser. We cannot and do not accept liability for the consequences of any information provided to your Insurer regarding your entitlements to Input Tax Credits on the premiums paid on your insurance policies.

ESSENTIAL READING OF POLICY WORDING
The original of your policy wordings has been provided to you or will be passed to you as soon as they are received from Insurers. It is in your own interests to read these documents without delay and advise Insurance Advisory Service (NSW) Pty Ltd in writing of any aspects which are not clear to you or where any aspect of the cover does not meet with your requirements.

GENERAL
Many areas of insurance are complex and some implications may not be evident to you. Your Account Manager and/or Account Director will keep you informed, but if at any time you are unsure of any aspect of your insurances, please contact Insurance Advisory Service (NSW) Pty Ltd to discuss the matter.