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Reinsurance with Non-residents

20.13. It is not uncommon for resident insurance companies to reinsure certain risks with non-resident companies, and section 148 of the Act contains special provisions for taxing such non-residents. Amendments to the section have been sought in submissions to the Committee.

20.14. To bring the income of a non-resident reinsurer to tax in respect of premiums pertaining to insurance of property situated in Australia or of events that can happen only in Australia is an extremely complicated matter. Before 1938 the Australian insurer was assessable to tax as agent for each ex-Australian reinsurer on the profit derived by the reinsurer. The profit so derived was deemed to be 20 per cent of the premiums received by the reinsurer, unless the actual profit or loss made by the reinsurer could be established to the satisfaction of the Commissioner.

20.15. Under pressure from the insurance industry, this basis was abandoned in 1938. Thereafter, premiums paid to non-resident reinsurers and recoveries from the latter were excluded from the assessments of local insurers and the full profit or loss arising from the risk insured was included in the assessment of the local insurer.

20.16. It was found that in most cases the insurer was able to recoup from the non-resident reinsurer the tax attributable to the reinsurance in question; but some local companies were at a disadvantage when they could not make satisfactory arrangements to recoup.

20.17. To meet the disadvantages facing local companies, the Act was amended in 1947 to allow the Australian insurer either to bring to account in his own return the profit or loss derived by the reinsurer or else to return 10 per cent of the premium paid to the reinsurer as taxable income and pay tax on that amount as agent for the reinsurer.




  ― 342 ―

20.18. Representations to have the figure of 10 per cent reduced have not been successful, the Commissioner being satisfied that, over a period, 10 per cent is not excessive. A submission to the Committee that overseas reinsurers be allowed to submit income tax returns for reinsurances ceded by Australian companies would lead to the unsatisfactory complications previously outlined, and to double taxation unless the Australian insurer elected not to bear the tax on the reinsurer's profits or losses.

20.19. Section 148 (3) of the Act refers to ‘ten per centum of the sum of the gross amounts of the premiums paid or credited by him … to non-residents’. The Committee understands that the Commissioner is interpreting this as not precluding the deduction from gross premiums of returned premiums and rebates for the purposes of calculating deemed profits on premiums. This interpretation will go some way to reduce deemed profit of local insurers on reinsurance business, and the Commissioner ought to notify the insurance industry of his current interpretation.

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