Insurers guide to the business activity statement instructions

Insured entitled to partial input tax credit - excess paid to third party

Reinstatement - taxable supply

The insured purchased domestic travel insurance from a general insurer at a cost of $1,054. The policy premium consisted of:

Base premium	$950
GST on policy	$95
Stamp duty on policy	$9
Total cost of policy	$1,054

The insured is registered for GST and has notified the insurer of their entitlement to an 85% input tax credit on the policy premium. The excess on this policy is $165 and is paid directly to a third party.

The insured makes a claim under the policy and the insurer assesses the loss as being $913 (GST-inclusive). The insurer contracts with a retailer to replace the damaged item and pays $748 directly to the retailer. The insured pays the balance (excess) of $165 directly to the retailer.

The insurer would treat this situation on their business activity statement as follows.

Description of payment	Amount shown on BAS	BAS label	Reason
Base premium inclusive of GST.	$1,045	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$95	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($9).	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to retailer.	$748	G11	Acquisition is a non-capital purchase.
ITC for retailer payment.	$68	1B	GST on purchase.

Reinstatement - GST-free supply

The insured runs a seafood café and purchased contents insurance from a general insurer for $2062. The policy premium consisted of:

Base premium	$1,850
GST on policy	$185
Stamp duty on policy	$27
Total cost of policy	$2,062

The insured is registered for GST and has notified the insurer of their entitlement to a 60% input tax credit on the policy premium. There is a $100 excess on this policy payable directly to the insurer.

The insured's café was broken into and some of the seafood stolen. The insurer assesses the loss of the seafood as being $2,388 (GST-free). The insured contracts with a seafood supplier to replace the seafood stock, and the insurer pays the supplier $2,388. There is no contractual relationship between the insurer and the supplier.

The insurer would treat this situation on their business activity statement as follows.

Description of payment	Amount shown on BAS	BAS label	Reason
Base premium inclusive of GST.	$2,035	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$185	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($27)	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to supplier at direction of insured ($2,288).	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to payment ($2,288).	$88 (see calculation below)	1B	Amount of decreasing adjustment.
Excess payment from insured ($100)	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the BAS.

Decreasing adjustment (DA) calculation - partial entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th x Settlement amount x (1 - extent of input tax credit)

The settlement amount is calculated as follows:

Step 1 The sum of the payments of money made in settlement of the claim

plus

Step 2 The GST-inclusive market value of the supplies (if any) made by the insurer in settlement of the claim (other than supplies that would have been taxable supplies but for section 78-25)

minus

Step 3 The sum of any payments of excess made to the insurer under the insurance policy in question (except to the extent that they are payments of excess to which section 78-18 applies)

multiplied by

Step 4	11
	11 - extent of input tax credit

	Step 1		Step 2		Step 3			Step 4
Settlement amount =	$2,388	+	0	-	$100	x		11
								11 - 0.6
=	$2,388	+	0	-	$100	x		11
								10.4
=	$2,420

DA =	1/11	x	$2,420	x	(1 - 0.6)
=	1/11	x	$2,420	x	0.4
=	$88

Amount to be shown at 1B on the BAS is $88.

There is no section 78-18 increasing adjustment applicable to the excess payment from the insured. The insurer has not made creditable acquisitions directly for the purposes of settling the claim.

Sections within Purchase of insurance policy and reinstatement to the insured

• Insured entitled to full input tax credit - no excess
• Insured entitled to full input tax credit - excess paid directly to insurer
• Insured entitled to full input tax credit - excess paid to supplier
• Insured entitled to partial input tax credit - no excess
• Insured entitled to partial input tax credit - excess paid to insurer
• Insured entitled to partial input tax credit - excess paid to third party
• Insured not entitled to input tax credit - no excess
• Insured not entitled to input tax credit - excess paid to insurer
• Insured not entitled to input tax credit - excess paid to supplier