Small business exemption

From 1 January 2018 certain types of general insurance are exempt from duty provided that the insured person is a Capital Gains Tax (CGT) small business.

You are considered a CGT small business entity if you:

  • carry on a business, and
  • have an aggregated turnover of less than $2 million for the income year in which the insurance is effected or renewed.

Please refer to the definition of CGT small business contained in section 152-10 (1AA) of the Income Tax Assessment Act 1997.

See the flowchart to assist with your determination of whether you are a CGT small business.

The insurer is usually liable to pay the duty, which may be passed on to the policyholder/insured person. If the insured person is a CGT small business an exemption will apply to:

If the insured person is a CGT small business, duty on these types of insurance will not be charged. It is important to note you still may be required to pay duty on other types of insurance contained in your policy.

How to claim the exemption

Once you have determined that you are a CGT small business, you need to provide a declaration to your insurer in an approved form. Please contact your insurer for further details.

There is a maximum penalty of $11,000 if false or misleading information is provided to obtain the small business exemption.

If a false declaration is made the insurer may require you to pay the duty, together with any interest or penalty tax payable.

Frequent questions

Why has the exemption been introduced?

The New South Wales Government announced this change to State taxes and grants as part of the 2017 State Budget. The small business exemption assists in reducing costs to support small business.

What is a NSW small business declaration?

The NSW small business declaration is a legally binding statement made by the insured declaring that they are eligible for the NSW small business exemption.

The declaration should be provided in an approved form confirming that the entity is a CGT small business as defined within the meaning of the Income Tax Assessment Act 1997 (of the Commonwealth) at the time that the contract of insurance is effected or renewed.

Who provides the small business declaration?

The insured person must provide a small business declaration to the insurer.

Who do I need to provide the declaration to?

The declaration needs to be provided to the insurer by the insured person. Where a small business effects policies with various insurers, a small business declaration will need to be provided to each insurer to claim the exemption.

What are the ‘approved forms’ of a small business declaration that an insurer can accept?

For this purpose, the Chief Commissioner will accept declarations obtained by or on behalf of an insurer in any one of the following manners:

  • a written declaration, whether in hard copy or contained in an email; or
  • an oral declaration, as evidenced by a voice recording made using systems of or on behalf of an insurer; or
  • an electronic declaration, such as a check box against a statement, made using electronic systems of or on behalf of an insurer in respect of any new policy application or renewal notice issued by or on behalf of an insurer.

For further information refer to the Commissioner’s Practice Notes No. CPN 001.

Can a small business declaration be completed by an agent or broker on behalf of the insured?

No. An agent or broker would need to obtain a small business declaration from the insured and provide the declaration to the insurer in order for the insurer to exempt the policy.

Who determines my small business exemption?

An insurer will determine the exemption upon receipt of a declaration. An insurer is required to keep these records for a minimum period of five years.

When does the exemption apply?

The exemption will only apply when:

  • The relevant insurance is entered into or renewed on or after 1 January 2018; and
  • A NSW small business declaration has been provided to the insurer in an approved form.

How long is the declaration valid for?

A declaration is only valid for an income year. A new declaration will be required each income year of the small business.

What happens if my policy was renewed before 1 January 2018 but I’m paying in instalments?

If a policy is effected or renewed before 1 January 2018, it will remain liable to duty regardless of when the instalments are paid.

I am a CGT small business and have an insurance policy covering multiple insurance types. Can I claim the exemption for small business on the entire insurance premium?

No. Your insurer will be required to apportion your insurance premium according to the insurance types covered and the exemption will only be applicable to the types of insurance that the exemption applies to.

Can an association be entitled to the exemption for small business?

If your association is a non-profit organisation having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose it may be eligible for an exemption from insurance duty under section 259 of the Duties Act 1997. If you meet this criteria, you can complete an Application for Exemption from Duty form and return it to harmonisation@revenue.nsw.gov.au.

If your association meets the definition of a CGT small business, you will be eligible for an exemption.

I am a CGT small business. What do I have to do to get a refund if I have been charged duty on exempt insurance after 1 January 2018?

If you have already paid your premium and want to claim the small business exemption, please contact your insurer and they will advise you of their process.

Does the exemption for small business apply to any other insurance types?

No. The only insurance types eligible for the exemption for small business are:

  • Commercial vehicle insurance being motor vehicle insurance for a vehicle used for business purposes. Refer to what is ‘commercial vehicle insurance’ at section 233(2A)(a) of the Duties Act 1997.

  • Commercial aviation insurance being aviation insurance for an aircraft used primarily for business purposes. Refer to what is ‘commercial aviation insurance’ at section 233(2A)(b) of the Duties Act 1997.

  • Occupational indemnity insurance insurance covering liability arising out of the provision by a person of professional services or other services (other than medical indemnity cover within the meaning of the Medical Indemnity Act 2002 (of the Commonwealth).

  • Product and public liability insurance being 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.

Does the small business exemption apply to commercial property?

The public liability component of this type of policy will only be exempt where the insured is a CGT small business.

Does the NSW Exemption for small business apply to local NSW Subsidiaries of a foreign global business?

The NSW exemption for small business applies to small businesses that have an Australia wide annual turnover plus the annual turnovers of any business entities that are your affiliates or are connected with you is less than $2 million.

My business is registered in another state other than NSW. Am I entitled to the exemption for small business?

Yes. You can still apply for the exemption for small business on insurance applicable to risks in NSW only. Insurance premiums will need to be apportioned between Australian jurisdictions. Insurers can refer to the Insurance Apportionment Schedule contained in Revenue Ruling No. DUT 038.

The policy holder for our commercial building insurance is in the name of the lessor who is not a CGT small business. We are the lessee paying the insurance policy and are a CGT small business. Do we qualify for the exemption for small business?

The policy holder is not always the insured person. The ‘insured person’ will need to be determined and if they are a CGT small business, they will be eligible for the exemption for small business.

Note: only the public liability component of the policy will be exempt and the premium will need to be apportioned by your insurer to determine the exempt component.

I estimate that my aggregated turnover will be $1.8 million for the upcoming financial year. Am I entitled to the exemption for small business if I exceed $2 million through the financial year?

The small business declaration is made at the time the insurance policy is effected or renewed. If the aggregate turnover worked out at the beginning of the income year is less than $2 million, the business is eligible to claim the exemption. This is irrespective of whether the aggregate turnover exceeds $2 million later in the year.

What if I am an insurer who received a small business declaration after duty was paid?

The Chief Commissioner is prepared to approve a special tax arrangement under section 37 of the Taxation Administration Act 1996 for any insurer who would like to be able to offset refunds on these policies against any subsequent return period. An insurer seeking this arrangement must apply to the Chief Commissioner in writing.

As an insurer, am I required to provide additional reporting to Revenue NSW?

There are no additional reporting requirements for an insurer. An insurer is required to keep sufficient records to enable its liability for duty to be assessed. These records include small business declarations received in an approved form. All records must be kept by the insurer in a readily accessible form for a period of five years.

What happens if I make a false declaration?

There is a maximum penalty of $11,000 if false or misleading information is provided to obtain the small business exemption.

If a false declaration is made (whether dishonest or not) the insurer may require you to pay the duty, together with any interest or penalty tax payable.

Last updated: 17 September 2018