Are you aware of the GST implications for QBCC insurance under the new scheme changes?
Back in 2016, QBCC announced changes to the Home Warranty scheme to expand the cover of insurable items and to allow consumers to increase the amount of cover by payment of an additional premium. There was also another important change made, in relation to the payment of the insurance premium under the scheme which has important implications for licensed contractors.
Before October 2016, the contractor had a statutory obligation to pay the premium and the owner would receive the benefit of the insurance. The arrangement is a bit unusual in the insurance industry as normally the person who pays the premium gets the cover. Because the contractor paid the premium, along with a GST amount, most contractors claimed back the GST as part of their return.
However, since October 2016, the changes to the Act require the contractor to collect and pay the premium on behalf of the consumer to the QBCC. This change means that as the contractor is collecting the premium and making payment to the QBCC for the customer, this has an impact on GST implications in two ways;
- Tax invoices – The QBCC issues a tax invoice to the consumer and not to the contractor. Contractors receive a receipt for acknowledgment only.
- Entitlement to GST – Because the contractor makes the payment on behalf of the consumer, the contractor is unlikely to be entitled to claim back GST on the premium.
What this means for contractors is that a) you don’t need to charge GST on QBCC insurance, and b) you are unable to claim GST on QBCC insurance.
The reason for this is that one of the criteria to claim back GST credits is that the payer is liable to pay the monies in their own right. The changes to the scheme mean that the consumer is normally entitled to the GST credit and not the payer because the contractor is acting on behalf of the payer.
Here’s a further breakdown;
Before 28 October 2016 :
- The contractor was required to pay the QBCC insurance premium, regardless of whether they had charged this premium to the consumer.
- Most contractors separately itemised the premium amount and on-charged it to consumers
- Most contractors then claimed backed the GST component of the premium as a business expense and;
- On-charged to customers the GST exclusive amount of the premium
- In sum, the contractor would include GST in respect of the premium both as a GST receivable amount (to the QBCC) and a GST payable amount (to the consumer)
After 28 October 2016 :
- The contractor collects the premium from the consumer and pays it to the QBCC on behalf of the consumer – therefore;
- the payment of the premium is no longer an expense of the contractor’s business from a GST perspective
- The contractor should not claim back the GST component of the premium on their GST return, and;
- The contractor should not remit GST to the ATO in relation to oncharging the premium to consumers
- In sum, the GST will not be included in the contractor’s GST return as either GST payable or GST receivable.
So, what do you need to do? The QBCC recommends the following;
- Ensure you collect the relevant premium from the consumer and pay this to the QBCC on time
- Ensure your internal accounting systems do not automatically claim back GST on premiums collected
- Contractors are advised to seek their own accounting and tax advice regarding the key GST differences between the accounting approach to be adopted under the existing and new Scheme are
The QBCC have come up with a handy reference that gives some worked examples for your reference here.
The situation can be complex, so we recommend you get in touch if you’re still claiming or charging GST to ensure you get the right advice. Contact us and a member of the team will be happy to help.