Duty on premiums paid in relation to contracts of business insurance will be abolished over a 10-year period from 1 July 2024. There will be a reduction of 1% per annum to the rate of insurance duty until it is abolished from 1 July 2033.
What is business insurance?
Business insurance is general insurance that falls under certain classes of business specified in a Prudential Standard of defined terms for general insurance (the Prudential Standard) issued by the Australian Prudential Regulation Authority (APRA). The specified classes of business are:
- aviation
- cyber (from 1 January 2025)
- directors and officers (D&O) (from 1 January 2025)
- employers’ liability
- fire and industrial special risks (ISR)
- marine
- public and product liability
- professional indemnity (collectively, the Specified Classes of Business).
General insurance that falls under one of these Specified Classes of Business will be business insurance irrespective of whether it is provided as a single contract of insurance or part of a packaged contract of insurance with other kinds of insurance. Business insurance does not include:
- general insurance that falls under any other classes of business in the Prudential Standard, such as the householders, commercial motor, travel, and mortgage classes of business
- general insurance that relates to the cyber or D&O classes of business if the relevant contract of insurance is effected or renewed prior to 1 January 2025.
Treasurer’s power
The Treasurer has the power to make declarations in respect of the definition of business insurance by notice published in the Victorian Government Gazette. One power is to declare that a kind of insurance that falls under a Specified Class of Business is not business insurance. On 20 June 2024, the Treasurer made a declaration that public liability insurance attaching to householder insurance policies (which falls under the public and product liability class of business) will not be business insurance from 1 July 2024.
What is the rate of duty for business insurance premiums?
The rate of duty for a contract of business insurance is determined by reference to the date the contract of business insurance is effected or renewed, not the date when the premium in relation to the contract is paid. The rate of duty will decrease by 1% each financial year from 1 July 2024 until it is fully abolished for contracts effected or renewed on or after 1 July 2033:
| Date contract is effected or renewed | Duty rate |
|---|---|
| On or before 30 June 2024 | 10% |
| 1 July 2024 to 30 June 2025 | 9% |
| 1 July 2025 to 30 June 2026 | 8% |
| 1 July 2026 to 30 June 2027 | 7% |
| 1 July 2027 to 30 June 2028 | 6% |
| 1 July 2028 to 30 June 2029 | 5% |
| 1 July 2029 to 30 June 2030 | 4% |
| 1 July 2030 to 30 June 2031 | 3% |
| 1 July 2031 to 30 June 2032 | 2% |
| 1 July 2032 to 30 June 2033 | 1% |
| On or after 1 July 2033 | 0% |
The rate of duty for a premium or part of a premium paid in relation to general insurance that is not business insurance remains at 10% of the premium.
Frequently asked questions
How can you identify if a kind of general insurance is business insurance?
The Prudential Standard lists examples of kinds of insurance that fall under each class of business. If a kind of insurance is not listed, it will be business insurance if the premium paid for the insurance is required to be reported to APRA under one of the Specified Classes of Business in the Prudential Standard.
Example 1
Insurer 1 effects a contract of business interruption insurance on 1 July 2024. Although business interruption insurance is not listed in the Prudential Standard, Insurer 1 is required to report the premium for the contract to APRA under a Specified Class of Business in the Prudential Standard (fire and ISR).
Accordingly, the contract of insurance is a contract of business insurance. The duty rate will be 9% of the premium (being the applicable rate as at 1 July 2024).
Does the gradual abolition apply to packaged contracts of insurance?
A single contract of insurance may provide a package of multiple kinds of general insurance. Some maybe required to be reported to APRA under a Specified Class of Business in the Prudential Standard and some may not. For these contracts, the premium is required to be apportioned. The decreasing rates of duty will apply to the part (or parts) of the premium that is required to be reported to APRA under a Specified Classes of Business. The rate of duty for the other part (or parts) of the premium will be 10%.
Example 2
Insurer 2 effects a contract of general insurance for a rural and working farm on 1 July 2025. Insurer 2 is required to report some parts of the premium for the contract under Specified Classes of Business (fire and ISR and public and product liability) and some parts of the premium under other classes of business (householders and domestic motor).
The contract relates to both business insurance and non-business insurance. Accordingly, the premium is required to be apportioned. The duty rate for the parts of the premium that relate to the Specified Classes of Business will be 8% (the applicable duty rate at the endorsement effective date of 1 July 2025). The duty rate for the other parts of the premium will be 10%.
What is the rate of duty for an endorsement to a contract that increases the premium?
The applicable duty rate chargeable on an increase in the premium relating to an endorsement to a contract of insurance is the applicable duty rate as at the endorsement effective date.
Example 3
Insurer 3 effects a contract insurance on 1 February 2025. The duty rate for the premium will be 9%. The contract is endorsed to add a new kind of business insurance, which increases the premium. The endorsement effective date is 1 July 2025.
The amount of duty chargeable on the increase in the premium in relation to the endorsement will be 8% (the applicable duty rate at the endorsement effect date of 1 July 2025).
What is the rate of duty if a contract of business insurance is cancelled and the premium refunded?
An insurer is entitled to a refund of duty if they refund the whole or a part of a dutiable premium in respect of a contract of insurance for which duty has been paid. If the contract is a contract of business insurance, the refund will correspond with the original duty paid on the amount of the premium refunded. This is the duty calculated and paid by reference to the date the contract was effected or renewed, not the cancellation date.
Example 4
Insurer 4 effects a contract of business insurance on 1 January 2025. The amount of duty paid is calculated by reference to the applicable duty rate for 1 January 2025 (9%). Insurer 4 refunds part of the dutiable premium in relation to the contract on 1 July 2025.
Insurer 4 is entitled to a refund that will correspond with the original duty paid on the premium refunded, which was calculated at the duty rate for when the contract was effected on 1 January 2025 (9%).
