Insurance Amendment Regulations 2001 (No. 1) 2001 No. 71
EXPLANATORY STATEMENT
Statutory Rules 2001 No. 71
Issued by the Authority of the Minister for Financial Services and Regulation
Insurance Act 1973
Insurance Amendment Regulations 2001 (No. 1)
Section 132 of the Insurance Act 1973 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are required or permitted by the Act to be prescribed or are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The Act and the Insurance Regulations (Principal Regulations) provide for the prudential regulation of authorised general insurers by the Australian Prudential Regulation Authority.
Section 32 of the Act sets out the definition of premium income for solvency purposes. Section 32 defines an insurer's premium income as the sum of the amount of premiums received in the course of insurance business during a given year less certain prescribed deductions. Examples of prescribed deductions include stamp duty, fire brigade levies and premiums included in the premium income of the insurer from a preceding financial year. Underlying the grant of deductions is the notion that the funds are not available to meet the claims of policyholders. They are merely collected by the insurer and passed on to the relevant authority.
Paragraphs 32(1)(f) and 32(2)(f) of the Act also allow for deductions in the calculation of premium income where that deduction is prescribed under a law of the Commonwealth or State or Territory.
At present, there is no prescribed deduction for the Goods and Services Tax (GST) collected under A New Tax System (Goods and Services Tax) Act 1999. Accordingly, collected GST is attributable to the premium income received by an insurer in the course of insurance business for the purposes of section 32 of the Act.
The purpose of the Regulations is to prescribe the GST as a deduction for the purposes of section 32(1)(f) and 32(2)(f) of the Act. Like other deductions prescribed under section 32, amounts collected for the purposes of the GST are not available to meet the claims of policyholders.
The Regulations also amend the citation provision of the Principal Regulations. The purpose of this Regulation is to bring the title of the Insurance Regulations into line with current drafting conventions.
Details of the Regulations are set out in the Attachment.
The Regulations commence on gazettal.
ATTACHMENT
Amendments to the Insurance Regulations
Regulation 1 - Name of Regulations
Regulation 1 provides that these Regulations are the Insurance Amendment Regulations 2001 (No. 1).
Regulation 2 - Commencement
Regulation 2 provides that the Regulations will commence on gazettal.
Regulation 3 - Amendment of Insurance Regulations
Regulation 3 provides that Schedule 1 amends the Insurance Regulations.
Schedule 1
Item [1] - Regulation 1: Name of Regulations
Item 1 changes the name of the Principle Regulations to the Insurance Regulations 1974.
Item [2] - New Regulation 8AA
This item inserts Regulation 8AA into the Regulations. It prescribes A New Tax System (Goods and Services Tax) Act 1999 for the purposes of paragraphs 32(1)(f) and 32(2)(f) of the Act.
Overview
The Insurance Amendment Regulations 2001 (No. 1) were introduced to address a gap in the Insurance Act 1973 concerning the treatment of Goods and Services Tax (GST) collected by insurers. Enacted under the authority of the Minister for Financial Services and Regulation, these regulations aim to align the calculation of an insurer's premium income for solvency purposes with the current tax system. By prescribing GST as a deduction under section 32 of the Act, the Regulations ensure that amounts collected for GST are not considered available to meet policyholder claims, consistent with other prescribed deductions. Additionally, these Regulations update the citation of the principal Insurance Regulations to reflect contemporary drafting conventions. The Regulations commence upon gazettal, providing immediate effect to these amendments.
Scope and Application
The Insurance Amendment Regulations 2001 (No. 1) serve to amend the Insurance Regulations, which are integral to the prudential regulation of authorised general insurers by the Australian Prudential Regulation Authority under the Insurance Act 1973. The scope of these Regulations applies to authorised general insurers operating within Australia, impacting their financial reporting and solvency requirements by prescribing the Goods and Services Tax (GST) as a deduction for the purposes of calculating premium income. This ensures that amounts collected for GST purposes are excluded from premium income, aligning with the principle that such funds are not available to meet policyholder claims. The Regulations not only introduce this specific amendment but also update the title of the principal regulations to conform with current drafting conventions. The amendments are effective from the date of gazettal and do not introduce any exclusions or exemptions beyond what is stipulated within the Insurance Act 1973 itself.
Key Provisions
The Insurance Amendment Regulations 2001 (No. 1) introduces several key provisions to the Insurance Regulations 1974. Under section 32 of the Insurance Act 1973, premium income is defined and calculated by considering certain prescribed deductions from the amount of premiums received. Section 32(1)(f) and 32(2)(f) of the Act allow for deductions where these are prescribed under a law of the Commonwealth or State or Territory. Currently, the Goods and Services Tax (GST) collected under the A New Tax System (Goods and Services Tax) Act 1999 is not prescribed as a deduction. The Regulations aim to address this by prescribing the GST as a deduction for the purposes of section 32(1)(f) and 32(2)(f) of the Act. This amendment ensures that amounts collected for GST purposes are not available to meet the claims of policyholders, aligning with the existing deductions prescribed under section 32.
The Regulations impose specific obligations on authorised general insurers, requiring them to account for GST in their calculation of premium income for solvency purposes. This amendment is necessary to reflect the current legislative framework and ensure consistency in how deductions are applied across different types of taxes and levies. Additionally, the Regulations update the citation provision of the Insurance Regulations 1974 to bring it into line with current drafting conventions, thereby enhancing clarity and accessibility of the Regulations.
Failure to comply with the provisions of the Insurance Amendment Regulations 2001 (No. 1) may result in civil or criminal consequences, although the specific penalties are not detailed within the explanatory statement. The Act and associated regulations provide for enforcement mechanisms that may include fines, corrective actions, or other penalties as prescribed by law. It is essential for authorised general insurers to adhere to these requirements to maintain compliance with prudential regulation standards set by the Australian Prudential Regulation Authority.
Overall, the Regulations aim to refine the calculation of premium income by incorporating GST as a prescribed deduction, thereby ensuring a more accurate reflection of the funds available to meet policyholder claims. The amendments also update the title of the Insurance Regulations 1974 to align with modern drafting practices, facilitating better understanding and application of the regulatory framework.