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'Eye opener': taxes take up more than a quarter of strata premiums

Peak body Strata Community Association (SCA) has again pressed for the removal of taxes on insurance products as a report it commissioned reveals more than a quarter of strata premiums went to government levies such as stamp duties.

Released today, the report found 165,554 owners corporations - defined as a body corporate, strata company, or community association - paid more than $830 million in strata insurance premiums and nearly $230 million in duties, levies and taxes last year.

The total cost of insurance payable by owners corporations was about $1.08 billion, according to the report prepared by Deakin University in Victoria. In 2016 the figure was about $619 million.

Some 27.45% of strata premiums on average were for taxes and levies charged by state, territory and federal goverments.

“Breaking down the total costs of insurance, premiums and the amount of duties, levies and taxes charged was a real eye-opener to just how much the consumer is paying in taxes just to take out a policy that is compulsory,” SCA National President Andrew Chambers said.

“If you’re taking out a strata insurance policy in Australia as a strata community then more than a quarter of what you pay on average goes to government taxes, stamp duties and levies.”

He says in NSW the figure is closer to 40%. The report says NSW and Tasmania have the highest tax burden due to the inclusion of emergency or fire services levies. Tasmania has recently opened consultations on proposed fire and emergency services reforms that include ending funding provided through a levy on insurance premiums.

“The report put forward several recommendations including to reduce or abolish stamp duties on strata insurance premiums, analyse ‘stacking taxation’ or ‘taxes on taxes’ for example with GST and replacing emergency levies with general revenue,” Mr Chambers said.

He says the SCA hopes that with this report, it can “implore governments” to reconsider the insurance tax regime.

“It’s not an equitable base,” Mr Chambers told today. He says this is particularly the case for northern Australia where premiums exceed that of national levels because of the region’s elevated catastrophe risk.

“Some of the premiums you are talking in the millions of dollars because of the location," he said. "It is a penalty because of where they are living. They are being penalised.”

According to the report, there are several duties, levies and taxes that significantly impact the total cost of insurance for strata schemes.

All jurisdictions impose GST and most states impose stamp duty, the report says.

“In addition, some schemes attract an additional levy, the terrorism insurance levy,” the report said. “As GST applies to a number of insurance components, there is a compounding effect that contributes to the high cost of taxes imposed on schemes.”

SCA says the report aims to provide a comprehensive data-driven view of strata insurance in Australia. The report surveyed 454 strata managers and 280 strata lot owners, analysed 58 versions of state and territory strata management agreements, investigated 38 pieces of legislation and regulation and gathered complex data from insurers.

Here are other key findings from the report:

• The average strata premium increased from $3305 in 2016 to $5017 last year, representing an overall rise of 12% during the period. Similarly, the total cost of insurance has on average risen from $4320 to $6522 over the same time

• Storm damage ($438 million), water damage ($362 million) and fire damage ($248 million) were the top three claims costs by loss for the 2016-2020 period

• There are global and localised pressures impacting upon insurance availability and affordability including increased costs in the reinsurance market, global climatic events, northern Australian climatic events and building defects and cladding risks

• A desktop audit identified 17 underwriters (supported by 11 general insurers) specialising in strata insurance. Six of these underwriters had limitations in terms of the locations in which these products are offered. Nine underwriters provide only residential strata insurance products, and eight underwriters provide both residential and commercial products

• Nearly 40% of lot owners surveyed indicated that insurance commissions should be abolished, and 30% believe commissions need to be better regulated. However, the majority of lot owners opposed to the commission-based remuneration structure changed their position when confronted with scenarios where the agreed services fee increased by at least 25%.

Click here for the report.