Clarity on application of GST Act

On 4 March 2024, the Full Court of the Federal Court constituted by Derrington, Thawley, and Hespe JJ presiding, rendered a decision in favour of Hannover Life in its dispute against the Commissioner of Taxation.

The case examined Hannover’s entitlement to input tax credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the ‘GST Act’), specifically regarding commissions and overhead expenses. This decision provides significant clarification on the application of the GST Act, particularly in determining the connection between acquisitions and taxable supplies within the insurance industry.


Operating within the life insurance and reinsurance markets, Hannover Life Re, a Hannover Rück SE subsidiary, challenged the Commissioner’s denial of input tax credits for commissions paid to policy distributors and various overhead costs. At issue was whether these expenditures were exclusively linked to input taxed supplies, thus disqualifying Hannover from the claimed credits under s 11-15(2)(a) of the GST Act.

Relevant facts

Hannover’s business involved both input taxed supplies, like life insurance policies, and GST-free supplies, including reinsurance services for policies issued outside Australia. The key questions on appeal concerned whether the disputed overhead costs were solely related to input taxed supplies and the proper method for apportioning input tax credits given these costs supported both supply categories.

Legislative scheme

Central to the dispute were sections 11-15, 11-20, 11-25, and 11-30 of the GST Act, guiding the entitlement and computation of input tax credits. These sections address whether acquisitions are made for a “creditable purpose” and their relevance to taxable supplies.

Issues on Appeal

The appeal tackled whether the overhead expenditures related exclusively to input taxed supplies, barring Hannover from input tax credits, and, if not exclusively related, how to accurately determine the extent of their creditable purpose.



The Court thoroughly reviewed how Hannover’s acquisitions related to its broad range of supply activities, concluding that the overhead costs were not exclusively tied to input taxed supplies. These costs, the Court found, underpinned Hannover’s entire business, including its GST-free activities.

Furthermore, Hannover’s method for apportioning input tax credits, based on the revenue from GST-free supplies, was deemed a reasonable reflection of the true purpose of the expenditures across the company’s operations.


This decision clarifies the GST Act’s input tax credit provisions for businesses with mixed supply operations, particularly in the insurance sector. It highlights the Court’s methodology in assessing the connections between business acquisitions and diverse supplies, endorsing a pragmatic approach for apportioning input tax credits when costs benefit both input taxed and GST-free supplies.

By dismissing the Commissioner’s appeal, the Court confirmed Hannover’s entitlement to input tax credits for its overhead expenditures. This judgement emphasises the need for a nuanced evaluation of a company’s acquisitions in relation to its varied supply activities for GST purposes, providing critical guidance for entities involved in mixed supply operations.

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