Insurers guide to the business activity statement instructions

Insured entitled to partial input tax credit - excess paid to insurer

The insured purchased stock insurance from a general insurer at a cost of $5,525. The policy premium consisted of:

Base premium (including FSL)	$5,000
GST on policy	$500
Stamp duty on policy	$25
Total cost of policy	$5,525

The insured is registered for GST and has notified the insurer of their entitlement to a 90% input tax credit on the policy premium. The excess on this policy is $1,200 and is paid directly to the insurer.

The insured makes a claim against the policy and the insurer assesses the loss as being $13,409 (GST-inclusive). The insurer contracts with a wholesaler to replenish the stock and pays $13,409 to the wholesaler.

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 and FSL.	$5,500	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$500	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($25).	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to wholesaler.	$13,409	G11	Acquisition is a non-capital purchase.
ITC for wholesaler payment	$1,219	1B	GST on purchase.
Excess payment from insured. ($1,200)	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the BAS.
Increasing Adjustment attributable to Excess payment.	$109.09 (see calculation below)	1A	Amount of increasing adjustment.

Increasing adjustment (IA) calculation - full entitlement to input tax credits

The section 78-18 increasing adjustment is calculated as follows:

IA =1/11th of the amount that represents the extent to which the payment of excess relates to creditable acquisitions and creditable importations made by the insurer directly for the purposes of settling the claim.

1/11th x 100% x $1,200 = $109.09.

Amount to be shown at 1A on the BAS is $109.09.

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