The QBCC is the regulator of the building industry in Queensland, issuing licences to contractors, providing a free dispute resolution service and administering a home warranty scheme to provide insurance cover for residential construction work in Queensland.
Under the home warranty scheme, licensed contractors must pay a premium for residential construction work they carry out.
The scheme provides home owners with cover for loss where a licensed contractor does not complete the contracted works or fails to rectify defective work.
From 28 October 2016 the Scheme will be changed in various ways. These changes include:
- everything previously insurable under the home warranty scheme, will continue to be insurable;
- the scheme has been expanded to cover other additional items; and
- a consumer will be able to increase the amount of cover by payment of an additional premium;
In addition to these changes, an important change has also been made in relation to the payment of the insurance premium under the Scheme. This change has important GST implications for licenced contractors.
Scheme Changes and GST
Prior to 28 October 2016, the contractor had a statutory obligation to pay the premium, yet the owner is the party that receives the benefit of the insurance. This arrangement is somewhat unusual in the insurance industry – normally the person who pays the premium gets the benefit of cover.
As the contractor paid the premium (including a GST amount) most contractors claimed back the GST component in their GST return process.
From 28 October 2016, the amendments to the Act require that the licensed contractor collects and pays the premium on behalf of the consumer to the QBCC.
As the contractor is collecting the premium and making payment to the QBCC on behalf of the consumer, this change has two main GST implications:
1. Tax invoices
The QBCC will issue a tax invoice to the consumer and will no longer issue a tax invoice to contractors.
For administrative purposes contractors will receive a receipt acknowledging that the QBCC
has received the relevant premium monies from the contractor.
2. Entitlement to GST credits
As the contractor makes the payment of the premium on behalf of the consumer, the contractor is unlikely to be entitled to claim back the GST component of the premium. This is because one of the criteria to claim back GST credits (officially referred to as ‘input tax credits’ in the GST Act) is that the payer is liable to pay the monies in their own right. Where the payer (ie contractor) is acting on behalf of another party (ie consumer), the other party (ie the consumer) is usually entitled to the GST credit (if other requirements are met) not the payer.
Implications for Contractors
Under the new Scheme contractors do not pay GST to the ATO on the premium collected from Consumers. The QBCC has advised that the collection of premium from the consumer will not constitute a taxable supply made by the contractor to the consumer under section 9-5 of the GST Act. This is because the contractor is collecting the premium and passing it on to the QBCC on behalf of the consumer (as deemed by the amendment to section 68A of the QBCC Act).
As a result, the contractor will not be required to pay GST to the ATO in respect of on-charging the premium to the consumer. The contractor will pass on the entire GST inclusive value of the premium collected to the QBCC in order to comply with the amendments to section 68B of the QBCC Act.
Under the new scheme the QBCC will no longer issue tax invoices to the contractor, rather they will be issued to the consumer and the contractor will receive a receipt acknowledging the QBCC has received payment only. For more information visit the QBCC website.