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From 1 January 2005 changes were introduced which affected the applicability of GST on certain imported supplies and services and we would provide the following advice as to the impact of the GST reverse charge on insurance cover provided by overseas insurers to New Zealand based GST registered clients.

This advice is necessarily of a general nature and will need to be considered based on individual circumstances.


  • The reverse charge does not apply to insurance cover supplied to GST registered clients of Avsure if they are making at least 95% taxable supplies (ie 95% of their supplies are subject to GST).

  • The reverse charge does apply to insurance cover supplied to GST registered clients of Avsure who are making less than 95% taxable supplies.  Banks and other financial institutions would typically be in this situation.  In these cases however, the onus is on the GST registered client to add GST to the premium paid and return the GST to the IRD.

  • The reverse charge also applies to clients who are making no (or minimal) taxable supplies and who are therefore not registered for GST.  However, if the client’s taxable supplies (including insurance premiums paid to foreign Insurers) do not exceed $40,000 in any 12 month period, the reverse charge will not apply.


         Purpose of the new legislation

Prior to enactment of the new GST reverse charge legislation, imported services were not subject to New Zealand GST.  This was the reason GST was not payable on premiums paid by New Zealand resident insured parties to non-resident insurers not carrying on business in New Zealand.  The fact that your insurance has been arranged by Avsure as a broker carrying on business in New Zealand does not affect this conclusion.  Because brokers act purely in an agency capacity, the supply of insurance for GST purposes is considered to be from the underwriter.  This is in contrast with the position relating to imported goods, on which GST has always been payable since the introduction of GST in 1985 (and collected by Customs) at the point of importation.

In 2003, the Government announced its intention to introduce a reverse charge mechanism to impose GST on certain imported services.  The reverse charge is intended to remove the distortion in favour of imported services compared with domestic supplies of services.

The relevant reverse charge provisions summarised below apply from 1 January 2005.  The provisions were inserted into the Goods and Services Tax Act 1985 by the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003.


Scope of the reverse charge

To minimise compliance costs, the reverse charge is aimed primarily at services acquired by businesses in circumstances where those businesses are not making fully taxable supplies.  The Government made a deliberate policy decision that the reverse charge should not apply to GST registered parties that make supplies that are subject to GST in full.  As a consequence of this significant carve-out, the primary impact of the reverse charge regime is on banks and other financial institutions with material (ie in excess of 5%) GST exempt supplies.  However, the legislation may also impact on private consumers/individuals who import substantial services from offshore.

In broad terms, the reverse charge requires GST registered recipients of imported services (including insurance) to self-assess GST on the value of the imported service if the following two criteria are satisfied:

  • The services are not acquired by a person who makes taxable supplies that represent 95% or more of total supplies: and

  • The supply of the imported services, if made in New Zealand by a registered person, would be a taxable supply.

A GST registered person who fails to meet the 95% taxable supplies threshold and acquires insurance services from offshore will be required to add GST to the premium and return that GST to IRD.  In contrast to the normal position applicable to GST, in this case it is the recipient of the supply who is treated as the person who actually made the supply for GST purposes.


Avsure organises Insurance with offshore insurers (not carrying on business in New Zealand) to provide cover in relation to aircraft used by the following broad categories of clients:

  • General businesses (manufacturers, Ag and commercial operators, Aero Clubs/Flying Schools etc).

  • Farmers

  • Individuals (and other entities) who own aircraft but charter them out.

  • Individuals (and other entities) who own aircraft solely or substantially for private use.

General businesses and farmers

In relation to general businesses and farmers, the reverse charge regime should have no impact as the recipient of the insurance services will typically make taxable supplies that represent 95% or more of their total supplies.  However, if the business is a New Zealand bank or financial institution that owns an aircraft which is insured offshore, then the 95% taxable supply threshold is likely not to be met, and GST is payable (by the insured party) on the premium.  GST would also be payable in these circumstances on any insurance claims proceeds - Section 5(13) of the GST Act refers.

Individuals – private use

In relation to individuals (and assuming they are not GST registered), the starting point is that the reverse charge mechanism applies as the insurance services are not acquired by a person making taxable supplies that represent 95% or more of total supplies.  However, unless the deemed supply of insurance services (ie insurance premiums paid to foreign Insurers) plus other supplies exceed an aggregate of $40,000 in any 12 month period, the Insured party will be below the GST registration threshold and therefore the reverse charge will not apply.

In reality few, if any, private individuals would be incurring insurance premiums in excess of $40,000 per annum in relation to aircraft and therefore, it seems unlikely that any of Avsure’s clients will be required to register for GST purposes solely as a result of the new reverse charge proposals.  However, there may be some clients who currently make other taxable supplies below the $40,000 threshold who will be deemed to exceed the $40,000 threshold as a result of the reverse charge rules.  They should discuss their own circumstances with their accountants.

Individuals – charter 

Individuals (and potentially other entities such as trusts) that own an aircraft and charter it out should generally be outside of the reverse charge regime.  This is because they will either be below the $40,000 threshold (and therefore not GST registered), or will already be GST registered with taxable supplies representing 95% or more of their total supplies.  If this is the case then the reverse charge will not apply to them.  However, as noted above there may be some individuals who currently make taxable supplies below the $40,000 threshold who will be deemed to exceed the $40,000 threshold as a result of the reverse charge rules.

While we are on the subject of GST we would reiterate the following contained elsewhere in our web page under the “General Information” link:


GST and Claim Proceeds.

This is a little complex and we need to consider it in two categories:-

  1. Partial claims involving repair costs

  2. Cash settlements to the insured in circumstances of total loss, constructive and/or arranged total losses which includes cash provided in lieu of repairs.

 Repair Claims

New Zealand repairers are liable to charge GST for repairs undertaken in New Zealand for New Zealand resident insured persons/policy holders.

In case of a GST registered insured person, the offshore insurer will pay the nett repair costs (less GST), and less the applicable deductible.  The policy holder will be responsible to the repairer for payment of the deductible and the GST content which is recoverable on their next GST return.

In the case of a policy holder that is not registered for GST purposes, the GST amount of the repair bill is included and paid by the offshore underwriter less the deductible.  In such cases the unregistered (GST) policy holder will then only need to pay the hull deductible directly to the repairer.

Total Loss Claims

In the case of total loss, constructive or arranged total loss including cash settlements in lieu of repairs, such settlements involve a direct supply between the offshore insurer and the insured policy holder.  As the underlying policy of insurance is not subject to GST then GST is not payable by GST registered persons on cash settlements from offshore insurers.



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