|Date of judgement||05 October 2016|
|Judge(s)||Professor G Walker, Senior Member|
|Court or Tribunal||New South Wales Civil and Administrative Tribunal|
DUTIES – life insurance – term policies – duty assessed on first year’s premium – whether duty paid in first year or duty attributable to first year
Re Commercial Bank of Australia Ltd (1893) 19 VLR 333
This case concerned an application for review of five duty assessments on insurance policies issued to the Taxpayer by the Chief Commissioner of State Revenue (“Chief Commissioner”) on 17 July 2015, in relation to the Taxpayer’s insurance duty liability for the period from June 2011 to December 2014 (“the Relevant Period”).
The issue was the construction of the words “the first year’s premium” in s 243(2) of the Duties Act 1997 (NSW) (“the Act”), in relation to term life insurance policies in which the premium for the entire term is paid up front.
The Taxpayer is an insurance company that provides various forms of insurance cover to New South Wales residents, including life insurance. During the Relevant Period, the Taxpayer issued five insurance policies that included both general insurance and life insurance. Insurance under each of the five policies was issued for a fixed term of years, with a single premium payable at the outset of the policy’s commencement.
Each policy permitted the policy holder to exercise their right to cancel the policy at any time, and required the Taxpayer to refund to the policy holder the portion of the prepaid premium that was attributable to the unexpired period of insurance remaining under the policy, in accordance with the formula set out in the National Consumer Credit Protection Act 2009 (“NCCP”).
The Taxpayer paid duty on the life insurance component of the policies pursuant to s 243(2) of the Act on the basis that the “first year’s premium” on the policy could be calculated as a pro rata percentage of the total premium paid by the policy holder to effect the insurance coverage (having regard to the number of years for which the policy was to remain in place). On 17 July 2015, the Chief Commissioner assessed the Taxpayer as liable to pay additional insurance duty for the Relevant Period, on the basis that the dutiable value of the policies included the total amount of the premiums paid that year in order to effect the respective policies.
Section 243 of the Act relevantly provides:
The Taxpayer submitted that s 243(2) should be construed as meaning the premium referable or attributable to the first year of the policy, on a pro rata basis. The Taxpayer contended that the words “the first year” served to qualify the subsequent words “premium on the policy”, which necessitated that duty was payable on the amount of the prepaid premium that was attributable to the first year of the policy. The Taxpayer referred to case law including National Mutual Life Association of Australia v Federal Commissioner of Taxation (1959) 102 CLR 29, to support the submission that the courts are willing to apply principles of apportionment to insurance premiums.
The Chief Commissioner submitted that s 243(2) should be construed as referring to the total consideration received by the Taxpayer during the first year of the policy in order to effect the term insurance policy. The Chief Commissioner acknowledged that where a term insurance policy is renewed annually with yearly payments of premium, s 243(2) would apply only to the amount of premium that is paid in the first year to effect the policy, and not to premiums payable to simply renew the policy in subsequent years. The Chief Commissioner noted that the policies in question were single premium policies that endured for a term of years. Accordingly, the Chief Commissioner contended that since the entire amount of the premium was required to be paid up front to effect the policy, the entire premium amount was dutiable.
Senior Member Walker emphasised that the Act must be read in its entirety, and he found, on a proper construction of the Act, and especially Chapter 8 of the Act, that the words “first year’s premium” in s 243(2) mean the amount of premium attributable to the first year, and not the sum actually paid in the first year.
In making this finding, Senior Member Walker contrasted the use of the words “premium paid” in s 243(4) with their absence in s 243(2). Senior Member Walker considered that the absence of the words “premium paid” in s 243(2) supported the Taxpayer’s submission that s 243(2) refers to the premium attributable to the first year of the term of insurance, irrespective of whether the entire premium amount is required to be paid up front at the commencement of the policy.
Senior Member Walker referred to the National Mutual case in finding that the courts have been prepared to apportion income tax and stamp duty liability “in such a way as to ensure it falls only on the appropriate part of the premium”.
Senior Member Walker considered that the cancellation provisions in the policies made it clear that the amount of premium attributable to the first year and subsequent years was readily ascertainable by the application of the formula contained in the NCCP. Consequently, Senior Member Walker determined that it was appropriate to apportion the premium in the manner contended for by the Taxpayer in these proceedings.
Senior Member Walker ordered that the Chief Commissioner’s decision be set aside.