|Practice note number||CPN 015|
|Tax/benefit||Emergency Services Levy|
|Date issued||15 April 2020|
Commissioner of State Revenue
This Commissioner’s Practice Note explains how the Emergency Services Levy Act 2017 (“the ESL Act”) is administered by the Chief Commissioner, including key aspects of the assessment of initial and final assessments, and the interpretation of key terms used in the legislation. It does not deal with transitional provisions that applied to financial years prior to 1 July 2019.
Note: Insurers should be aware that failure to pay the correct amount of levy, which is based on each insurer’s market share of relevant premium revenue during a financial year from relevant classes of insurance, may be a tax default which incurs interest and penalty tax under the Taxation Administration Act 1996 (“the TAA”).
The purpose of the Levy is for the insurance industry to fund 73.7% of the annual costs of the Rural Fire Service, the State Emergency Service & Fire & Rescue NSW.
Liable persons include:
Reportable classes of property insurance and the reportable proportion of premiums for each class of insurance are listed in Schedule 1 of the ESL Act.
Reportable premiums include commissions and bonuses.
Insurers must register and pay an initial Levy contribution for a financial year if they are entitled to receive relevant premiums on or after the 31 March prior to that financial year.
Initial contributions are payable in four quarterly instalments, due on 1 September, 1 December, 1 March and 1 June.
Insurers which are liable to pay an initial contribution must lodge an annual return by 30 September following the end of each financial year.
Final assessments are issued as soon as practicable after 30 September, with refunds or a requirement to pay an additional amount, as appropriate.
If a liable person does not lodge a final Return of Premium by 30 September, the Chief Commissioner may issue a Late Final Notice with penalty.
Failure to lodge a final Return of Premium is an offence under s. 57 of the TAA and carries a maximum penalty of 100 penalty units (currently $11,000).
Insurers which fail to pay a final assessment on time commit a tax default and may incur penalty tax and interest under the TAA.
The Emergency Services Levy Insurance Monitor (“Monitor”) is responsible for indentifying and resolving over-collection of Levy for the 2015-16 and 2016-17 financial years combined and the 2017-18 and 2018-19 financial years combined, and may refer unrefunded over-collection amounts to the Chief Commissioner for debt recovery action.
For the 2019-20 and each subsequent financial year the Treasurer is responsible for reviewing cases of over-collection (referred to as a “price discrepancy”).
The Treasurer may request further information and may publish details of a price discrepancy if not satisfied with an insurer’s explanation of the price discrepancy.
The Emergency Services Levy (“the Levy”) was established by the ESL Act, which commenced from 1 July 2017. References in this CPN to legislative provisions are to provisions in the ESL Act unless otherwise stated.
The ESL Act establishes the emergency services insurance contribution scheme to which insurers issuing or renewing policies of insurance of the classes described in Schedule 1 of the ESL Act are liable to contribute.
The ESL Act imposes the levy on insurers of specified classes of property located in NSW to fund 73.7% of specified annual costs of the following NSW emergency services:
The Treasurer publishes a notice in the Gazette by 15 April each year, specifying the total amount (called the “contribution target”) required to fund 73.7% of the estimated costs of the emergency services for the next financial year. This amount is paid by the insurers issuing or renewing policies of general insurance of the classes described in Schedule 1 to the ESL Act.
Insurers (including underwriters) who insure against loss of or damage to property located in NSW are liable to pay the Levy.
If a NSW insurance agent or broker  arranges insurance of property in NSW with an insurer in another state or territory, or with a foreign insurer, and the agent or broker receives or is entitled to receive the premium, the agent or broker is liable to pay the levy.
Liable insurers, as well as agents and brokers who receive premiums on behalf of foreign insurers (such as Lloyds of London), must register with the Chief Commissioner within 30 days after first receiving or becoming entitled to receive reportable premiums (s.35).
An insured person who takes out relevant insurance with a foreign insurer (such as Lloyds of London) may be required to pay the levy payable by the foreign insurer. This might occur directly between the insured person and the insurer or through a broker. The insured person or the broker that pays the levy is entitled to recover the levy from the foreign insurer.
Note: A “foreign insurer” is an insurer who is not authorised under a law of the Commonwealth, or of a state or territory to carry on an insurance business.
The premiums for some classes of insurance are relevant for the levy and some are only required for statistical purposes.
“Relevant insurance” is any class of insurance against loss or damage to property listed in Schedule 1 of the ESL Act, which is located in NSW during any part of the period covered by an insurance policy.
The reportable proportion of the premiums within a relevant insurance type varies depending on the class of insurance. The proportion of premium of each class of insurance which is reportable (called the “relevant proportion”) is specified in column 2 of Schedule 1.
Ace Insurance insures the home and contents of a property for the 2019-20 financial year and charges an annual base premium of $2,000, plus ESL, GST and stamp duty. The reportable premium includes the base premium plus ESL. Home and contents insurance is classified as class 2 insurance and the relevant proportion of the premium that is reportable is 50%.
Ace Insurance must include the base premium of $2,000 plus the ESL applied on this policy, multiplied by 50% in item 2 on its final return for the 2019-20 financial year.
The premium which is reportable includes ESL, brokerage and commission paid on the premium or bonuses. GST and duty payable under the Duties Act 1997 (NSW) are not reportable.
Home Builder Ltd insures its business assets with Ace Insurance, using Local Broker Ltd, and pays $100,000, including the amount attributed to the Levy and broker’s commission, but excluding GST and stamp duty.
The insurance is class 1 insurance, and the relevant proportion which is relevant to calculation of the levy payable by Ace Insurance is 80% of $100,000.
Therefore the reportable premiums of Ace Insurance for class 1 insurance policies would include 80% of $100,000, ie $80,000 for this policy.
In determining the amount of premiums received, an insurer may use either cash or accrual accounting standards, but must use the same accounting standard used in the previous year unless the Chief Commissioner gives approval for a change (s.32(4)-(7)).
Ace Insurance charges a reportable premium of $10,000 per calendar month (ie excluding GST and stamp duty) for a policy of class 1 insurance for 12 months commencing on 1 October 2019. Ace insurance receives a payment of reportable premium of $120,000 on 1 October 2019. The relevant proportion of class 1 insurance is 80%.
If Ace Insurance uses cash accounting, it would include $120,000 as total reportable premium, and 80% of the $120,000 (ie $96,000) as premium subject to contribution in its annual return for 2019-20.
If Ace Insurance uses accrual accounting, it would include 75% of reportable premium (ie $90,000) and 80% of that amount (ie $72,000) subject to contribution in its annual return for 2019-20, and 25% as reportable premium (ie $30,000) and 80% of that amount subject to contribution in its annual return for 2020-21 (ie $24,000).
Note: Requests to approve a change in accounting standard for a financial year should include an explanation of the reason for the change and an estimate of the difference in reportable premiums as a result of the change. Changes will generally only be approved from the beginning of a financial year. No adjustments should be made to reflect premiums that were included or excluded in the previous year under the previous standard.
Newstart Insurance Ltd is a specialist insurance company which insures property in NSW and uses the cash accounting standard. In March 2020, Newstart is taken over by Growth, which uses accrual accounting. Newstart is maintained as a separate entity, but support functions including accounting services are provided by Growth Insurance Ltd.
Newstart must seek the Chief Commissioner’s approval for the next financial year commencing on 1 July 2020 before changing from cash to accrual accounting.
Newstart included $1m in cash premiums in 2019-20 that it must also include in its 2020-21 final return because the premiums “accrued” in 2020-21. This will be offset to the extent that cash premiums received in 2020-21 that accrue in the following year will not be included until the 2021-22 final return.
Note: An auditor’s certificate does not have to be provided when requesting approval to change accounting standards.
If a policy of insurance covers risk to more than 1 class of insurance and a different proportion of reportable premium applies under Schedule 1, the total premium must be allocated to each class of insurance if:
If the policy does not specify the components of the premium or sum insured applying to each class of insurance, the premium should be allocated to the predominant class of insurance.
The predominant class of insurance is the main or principal class of insurance having regard to the value of each class of property insured under the policy.
If premiums for a single policy are allocated between multiple classes, insurers must keep a written record explaining the calculation and the basis used to allocate premiums.
Insurance of personal jewellery with a value of up to $5,000 is included in a home and contents insurance policy, with $100,000 in amount insured, but a single premium amount is charged. The relevant proportion of the total premium will be 50%, which is the proportion applying to home and contents insurance because it is the dominant insurance type.
Where a policy of insurance covers multiple causes of risk, such as fire, flood and other causes, the entire premium is reportable, not just the portion that is estimated to apply to the fire component.
If a policy of insurance covers risks in NSW and also in another country, the proportion of the total premium that relates to the risk to property located in NSW is reportable. If the proportion of premium for NSW property is not specified, the NSW proportion may be determined using a reasonable estimate of the NSW proportion of the risk; eg using the proportionate value of NSW property.
An insurer is liable to pay an initial contribution for a financial year if the insurer was liable to pay an initial contribution in the previous financial year unless:
An insurer who ceased selling relevant insurance and advised the Chief Commissioner before 31 March will not have to pay an initial contribution for the next financial year.
Insurers who fail to notify the Chief Commissioner before 31 March will have to pay an initial contribution. However, they will receive a refund within 30 days after the date of the notice of final assessment, which is issued in October following the end of the relevant financial year, provided they do not receive reportable premiums for relevant insurance. Insurers may apply to the Chief Commissioner for approval to an extension of time to pay instalments if the requirement to pay an initial contribution creates a cash flow problem or hardship.
Ace Insurance ceased to sell relevant insurance in February 2018 and received the last premium in February 2019. However, it did not advise the Chief Commissioner until 7 April 2019. The insurer is required to pay an initial contribution for the 2019-20 financial year because the Chief Commissioner was not advised before 31 March 2019.
Ace Insurance will have to lodge a return for the 2019-20 financial year by 30 September 2020 and will receive a final assessment of nil and a refund of its initial contribution within 30 days after the date of the final notice, provided it does not receive any reportable premiums during 2019-20.
Initial contributions are based on each insurer’s share of the total of reportable premiums returned by all liable insurers in the financial year commencing 2 years before the relevant financial year. In the case of a new insurer who did not receive any premiums during that prior year, the Chief Commissioner will use an estimate of the initial contribution amount instead of using the formula in s.13 (s.13(2)). New insurers will be asked to submit a “Projected Return” of reportable premiums.
Each insurer who is liable to pay an initial contribution will receive a notice of assessment by 30 April prior to commencement of the financial year showing the amount of their respective initial contributions for the year. The initial contribution is payable in 4 instalments, with instalments due on 1 September, 1 December, 1 March and 1 June. Instalment notices will be sent to insurers at least 21 days before the payment due date (s.16).
Assume the contribution target for 2019-2020 is $1billion.
Reportable premiums of Ace Insurance in 2017-18 represented 1% of the total of reportable premiums of all insurers liable to pay initial contributions in 2019-20.
Ace Insurance will therefore be liable for an initial contribution of $10 million (that is, 1% of $1billion), payable in 4 instalments of $2.5m, and due on 1 September 2019, 1 December 2019, 1 March 2020 and 1 June 2020.
If an insurer is liable to pay an initial contribution, but did not receive premiums that were relevant to the calculation of the Levy in the financial year commencing 2 years ago, an estimate of the insurer’s likely final contribution for the next financial year will be used to calculate the insurer’s initial contribution, using a Projected Return lodged by the insurer (s.13(2) & (3)).
On 15 March 2019 Ace Insurance notified the Chief Commissioner that it commenced receiving premiums for relevant insurance on 1 March 2019, but did not receive any relevant premiums for the 2017-18 financial year. The insurer is required to pay an initial contribution for the 2019-20 financial year, but an estimate of its annual premiums for relevant insurance is used in the calculation of its initial contribution for 2019-20. In determining the estimate, Ace Insurance will need to register for ESL and submit a Projected Return online.
The Chief Commissioner may become aware that an unregistered insurer is liable for an initial contribution after initial assessments have been issued. This may arise as a result of the insurer commencing business on or after 31 March, or because the insurer failed to register by 31 March.
If the newly registered insurer received or was entitled to receive premiums from relevant insurance in the financial year commencing 2 years before the relevant financial year, the Chief Commissioner will issue a late initial assessment in accordance with the formula in s.13 of the Act. The formula calculates the newly registered insurer’s initial contribution as a proportion of the contribution target for the relevant financial year, based on the newly registered insurer’s share of reportable premiums of all insurers for that earlier year.
If the insurer did not receive, or was not entitled to receive, any reportable premiums in the financial year commencing 2 years before the relevant financial year, the Chief Commissioner will issue a late initial assessment based on the Projected Return of the insurer’s contribution for the new financial year provided by the insurer.
The issue of initial contribution assessments after 31 March will not result in reassessments of initial contributions payable by other insurers who were registered by 31 March.
Each insurer who received an assessment at any time for an initial contribution for a particular financial year, and any other insurer who received reportable premiums during that financial year, is required to lodge a return by 30 September after the end of the financial year (s.32). The return must be in the form approved by the Chief Commissioner, disclosing premium for each class of insurance specified in Schedule 1.
Each insurer who is required to lodge a return is also required to lodge a certificate provided by a registered company auditor as defined in the Corporations Act 2001 (Cth), or an auditor who resides outside NSW with similar qualifications approved by the Chief Commissioner (see below).
An auditor’s certificate in the approved form must be provided by a natural person who:
The auditor’s certificate must be prepared in accordance with the Auditing Standard on Review Engagements ASRE 2405 Review of Historical Information Other than a Financial Report,and must specify:
The auditor’s certificate must be signed and dated by the auditor. Appendix A contains an approved form of auditor’s certificate.
Failure to lodge an auditor’s certificate with the Return of Premium is an offence under s.57 of the TAA, which carries a maximum penalty of 100 penalty units (currently $11,000).
If the Chief Commissioner is not satisfied with a Projected Return, a Return of Premium or auditor’s certificate, an audit investigation may be conducted.
If a person who was required to lodge a final Return of Premium before 30 September fails to do so, the Chief Commissioner may issue a final notice with interest and penalty tax. The Chief Commissioner may estimate the insurer’s final assessment using available information about the total amount of reportable premium revenue that the insurer may have received (s.27).
The final contribution payable by each liable insurer (including brokers and insured persons who are required to pay a final contribution of a foreign insurer) is calculated by the Chief Commissioner and assessment notices are issued to each insurer.
The formula for determining an insurer’s liability is as follows (s.17):
Insurer N’s liability = (N's reportable premiums x Contribution Target) / Total reportable premiums of all insurers
The Chief Commissioner will issue final assessment notices as soon as practicable after 30 September, which is the due date for lodging returns (s.18).
The contribution target for year T is $800m
Reportable premiums received by Ace Insurance in year T totalled $40m.
Reportable premiums of all insurers for year T totalled $3.2Billion
Ace Insurance will therefore be liable for a final contribution of $10m for year T, calculated as follows:
($40m x $800m) / $3,200m = $10m
If the insurer’s final contribution is greater than the insurer’s initial contribution, the notice of assessment will require the insurer to pay the difference within 30 days. If the final contribution is less than the initial contribution paid by the insurer, the Chief Commissioner will refund the difference within 30 days (s.19).
The Chief Commissioner may require an insured person who insures with a foreign insurer to lodge a final return (s.33) and pay the final contribution payable by the foreign insurer (s.21). If the Chief Commissioner issues a final assessment to an insurer, the insured person is entitled to recover the amount from the foreign insurer (s.21(6)).
If an insured person insures with a foreign insurer using a broker, the Chief Commissioner will permit the broker to lodge a final Return of Premium and pay the final contribution on behalf of the insured person or the insurer.
General Mining Company Ltd is an international mining company that takes out a single insurance policy for its assets across several countries, including assets in NSW, using a foreign broker (International Broker Ltd), who places the insurance with World-Wide Insurance Ltd, a foreign insurance company.
World-Wide Insurance Ltd (the foreign insurance company) is required under the Act to register, lodge a return and pay the levy. General Mining Company Ltd is also required to lodge a final return for the relevant financial year, by 30 September following the end of the financial year.
After considering a written request from International Broker Ltd, the Chief Commissioner approves the following arrangements for lodging returns and payment of the levy:
An insurer may lodge an objection or request a re-assessment if it has determined that the amount it declared in its final return for the relevant financial year was incorrect.
A request for re-assessment may be made within 5 years after the date of the initial assessment.
An objection or a request for reassessment by a company must:
Note: It is an offence under Part 8 of the TAA if any person makes a record that is false or misleading, provides false or misleading information to the Chief Commissioner, or deliberately omits information that results in a statement to a tax officer being false or misleading. The maximum penalty that may be imposed for such offences is $55,000 (in the case of a corporation).
The Chief Commissioner may assess or re-assess the liability of an insurer after the final assessment date for a financial year (that is, after 1 November following the end of the relevant financial year) (s.29). The TAA, including Part 3 (Assessment of tax liability), Part 4 (Refunds of tax), Part 5 (Interest and penalty tax) and Part 10 (Objections and reviews), applies to all tax assessments and reassessments.
The reasons for issuing such an assessment or re-assessment include:
Part 3A of the Emergency Services Levy Insurance Monitor Act (2016) (ESLIM Act) requires the Monitor to investigate over-collection of ESL for the 2016 and 2017 financial years combined, as well as for the 2018 and 2019 financial years combined.
Under the ESLIM Act the Monitor may require an insurer who over-collects ESL to return that money to its policy holders. Where the Monitor is satisfied it is impracticable for the insurer to refund the over-collection amount or part to relevant policy holders, the insurer may be required to pay the over-collection amount to the Chief Commissioner. If the insurer fails to pay an over-collection amount that has not been returned to insured persons, the Chief Commissioner may recover the amount as a debt.
For 2019-20 and each subsequent financial year information will be provided to the NSW Treasurer that will identify the final assessed liability for the levy for each insurer and the total of amounts that each insurer has attributed to the levy on its policies. Any difference is called a “price discrepancy”.
For this purpose, the Chief Commissioner is required to provide to the Treasurer, for each financial year commencing with 2019-20, the amount of premium attributed to the levy by each individual insurer, and the total amount of the final contribution amount payable by that insurer (s.39).
The Treasurer may request further information and publish information about a price discrepancy if not satisfied with the insurer’s explanation (s.41).
The lifecycle for the 2020-21 Levy is summarised at Appendix B.
The proportion of premium received for each class of “relevant insurance” which is relevant to the levy, called the “relevant proportion”, is specified in Part A and Part B of Schedule 1 of the Act.
Some classes of “relevant insurance” specified in Part B of Schedule 1 are not relevant to calculation of the levy. That is, the “relevant proportion” is nil. However, the amount of premiums received for those classes must still be disclosed in final returns.
Failure to properly report the premiums and relevant proportion of premiums is an offence under s.57 of the TAA and carries a maximum penalty is $11,000 for an individual or $55,000 for a corporation).
Further guidance on the insurance types listed in Schedule 1 is provided in Appendix C.
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INDEPENDENT AUDITOR’S REVIEW REPORT TO
(name of company)
THE CHIEF COMMISSIONER OF REVENUE (NSW)
We have reviewed the accompanying Return of Premiums (“Return”) for the (name of company) for the year ended 30 June YYYY, which comprises details of insurance premiums collected during the year ended 30 June YYYY, including a total amount of premiums subject to contribution of $__________ calculated using (specify accounting method).
The Responsibility of the Directors for the Return
The Directors of (name of company) are responsible for the preparation and fair presentation of the Return in accordance with the requirements of the Emergency Services Levy Act 2017 No 32 (“the ESL Act”) and have determined that the Return meets the requirements of the Act. This responsibility includes establishing and maintaining internal control relevant to the preparation of the Return that is free from material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the Return based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2405 Review of Historical Information Other than a Financial Report. ASRE 2405 requires us to conclude, whether, anything has come to our attention that causes us to believe that the Return is not presented fairly, in all material respects, in accordance with the Acts.
This standard also requires us to comply with the relevant ethical requirements.
A review in accordance with ASRE 2405 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries of management and others within the entity as appropriate, and applying analytical procedures and evaluates the evidence obtained.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with Australian Auditing Standards. Accordingly, we do not express an audit opinion on the Return.
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Return of (name of company) for the year ended 30 June YYYY does not present fairly, in all material respects, the total amount of premiums collected subjected to contribution in accordance with the Act.
Restriction on Distribution and Use
The Return has been prepared by (name and designation of authorised person signing the Return – see Corporations Act s.125) for distribution to the NSW Chief Commissioner of State Revenue for the purpose of fulfilling the requirements of the Act. As a result, the Return for the year ended 30 June YYYY may not be suitable for another purpose. Our report is intended solely for the directors of (name of company) and the Chief Commissioner of Revenue NSW and should not be distributed to or used by other parties. We disclaim any assumption of responsibility for any reliance on this report or the Return to which it relates, to any person other than the Chief Commissioner of Revenue NSW, or any other purpose than that for which it was prepared.
Signature of auditor ………………………
Date signed / /
Full name of Auditor ………………………
Auditor’s business address, telephone No. & email ………………………
Auditors ASIC Registration Number or
equivalent registration details in another country ………………………
Audit Company’s ASIC Registration No. (if applicable) ………………………
|By 31 March 2020||Insurers would need to advise the Chief Commissioner if they ceased to receive or be entitled to receive liable premiums during 2019-20|
|By 15 April 2020||Treasurer publishes a gazette notice of the contribution target for 2020-21|
|By 30 April 2020||Chief Commissioner issues initial assessment notices advising insurers[i] who were liable for the Levy in 2018-19 of the amount of their final contribution amount.|
|July 2020||Chief Commissioner issues instalment notices to liable insurers, agents and brokers.|
|1 September 2020||First instalment due|
|1 December 2020||Second instalment due|
|1 March 2021||Third Instalment due|
|1 June 2021||Fourth instalment due|
|By 30 September 2021||Insurers who paid and new insurers who are liable to pay an initial contribution need to lodge their final returns including an Audit Certificate – see Appendix A|
|November 2021||Chief Commissioner issues final assessment notices:
This includes insurance of static risks specified in policies of marine and baggage insurance, but only if a separate component of the total premium is specified for static risks.
Static risks include damage caused by human behaviour, such as theft, vandalism, robbery, arson, and burglary, and damage caused by natural conditions eg. rain, storms, and lightning.
Where a home and contents policy covers specific items of personal jewellery, clothing, personal effects and works of art, but there is a single premium for all home contents, the relevant percentage of the value of the total premium should be included under this item.
Where specific items of personal jewellery, clothing, personal effects and works of art are insured under a home contents policy, and the premium for these items is specified separately from the premium for general home and/or contents, the premium for these personal items should be included under this item.
Premiums for an insurance policy taken out by a business for inventory or stock consisting of jewellery, clothing personal effects or art works should not be reported under householder insurance and must be included in the Return of Premium under item 1.
Premiums for insurance of motor vehicles and motorcycles must be included under this item if the vehicle is registered in NSW or if the policy holder has a NSW address or nominates a NSW address as the place where the vehicle or motorcycle is garaged.
Marine and Baggage insurance is insurance confined to maritime perils and risks involving transportation by land, sea or air, and storage incidental to such transportation.
“Maritime perils” means the perils consequent on or incidental to the navigation of the sea, including perils of fire, war, piracy, theft, seizures, restraints, and detainment of people.
Insurance of static risks associated with marine and baggage insurance must be classified under item 1 if a component of the premium is identified as being for static risks associated with marine or baggage insurance.
Static risks include movements of goods, stock or material associated with processing or storage operations.
Livestock insurance is insurance of animals used in a business of primary production. It does not include insurance of thoroughbred, standardbred or bloodstock horses, greyhounds or pets, even if such animals are kept for breeding or sale of the animals or their progeny.
Aviation hull insurance is insurance against physical damage to an aircraft.
Premiums paid or payable for categories of insurance listed under item 8 of Schedule 1 attract a nil contribution rate if the insurance is solely for one of the listed categories, namely:
The Chief Commissioner accepts that a single policy of insurance that covers one or more of these risks, and does not include any class of liable insurance, is not relevant ot the calculation of market share for the levy and so attracts nil contribution rate.