NSW Stamp Duty Exemption on Insurance for SMALL BUSINESSES

DID YOU KNOW?

Working out on how much tax to pay is not exactly everybody’s cup of tea. Millions of taxpayers would do anything just to be released from the stress of tax. But as the new year rolled around, it is a safe bet to say that the enactment of a simpler and tax-saving law for stamp duty charges on their next insurance renewal is indeed good news to hear. Here’s what you need to know:

What changed?

Effective 01 January 2018, the Revenue NSW Government provided that small businesses will no longer be liable to stamp duty on certain types of insurance. These exemptions apply to:

Insurance type
Commercial vehicle insurance
Commercial aviation insurance
Occupational indemnity insurance
Product and public liability insurance
Cover affected
Motor vehicle used primarily for business purposes
Aircraft used primarily for business purposes
Insurance covering liability arising out of the provision by a person of professional services or other services (other than medical indemnity cover)
Insurance covering liability for personal injury of property damage occurring in connection with a business or arising out of the products or services of a business.

Who are affected in this exemption?

Small businesses (e.g. individual, partnership, company, or trust) domiciled in NSW may be eligible to seek exemption from paying stamp duty.

To qualify for the exemption, small business entities should fall within the meaning of section 152-10 (1AA) of the Income Tax Assessment Act 1997 of the Commonwealth. This includes the business’ aggregated (Australia-wide) turnover of less than $2 million and must be carrying on a business.

 

What are the conditions before claiming for exemption?

  • The insured must have a small business declaration provided in a manner approved by the Chief Commissioner to the effect that the person is a small business at the time of effectivity or renewal of the insurance contract; and
  • The insurance must have been effected or renewed after the 1st of January 2018.

In the instance that the small business covers policies with various insurers, a small business declaration needs to be provided to each insurer to claim the exemption. Otherwise, the policy will be liable to duty.

There are also cases where the policy may include multiple types of insurance. Duty will continue to apply on policies which are not covered on the exemptions.

 

How long does the declaration lasts?

According to the guidance provided by the Revenue NSW, the declaration made by a small business to an insurer is effective for the whole income year (30 June 2018, at present). As such, a new declaration will be required each financial year.

 

What are the implications of a fraudulent declaration?

  • A maximum penalty of $11,000; and
  • A false declaration (whether dishonest or not) that causes an insurer to be liable to pay a duty, the insurer may require you to pay an amount equal to the duty, together with any interest or penalty tax payable.
  • A fraudulent declaration may invalidate the insurance contract.

It is always advisable to seek professional advice from your accountant or financial adviser to confirm whether you are eligible for this exemption or not.

 

What is the process of refund?

The exemption only applies to covered insurance policies effected or renewed on or after 01 January 2018. Should a small business declaration be received after the policy ids effected or renewed, an insurer will need to approach the Chief Commissioner for a refund through the normal processes.

Alternatively, the Chief Commissioner can prepare to approve a special tax arrangement under section 37 of the Taxation Administration Act 1996 for any insurer who would like to offset refunds on these policies against any subsequent return period. An insurer seeking such a special tax arrangement must apply to the Chief Commissioner in writing.