Cash settlement - taxable supply
The insured purchased building and contents insurance from a general insurer at a cost of $12,352. The policy premium consisted of:
Base premium (including FSL)
|
$11,000
|
GST on policy
|
$1,100
|
Stamp duty on policy
|
$252
|
Total cost of policy
|
$12,352
|
The insured is registered for GST and has notified the insurer of their entitlement to a 70% input tax credit on the policy premium. Under the terms and conditions of the policy, the insurer can adjust settlement amounts paid under the policy to reflect the insured's possible input tax credit entitlement on use of the settlement funds. There is no excess on this policy.
The insured makes a claim against the policy and the insurer assesses the damages as being $11,000 (GST-inclusive). The insured is still entitled to a 70% input tax credit so if they spend $11,000 on acquisitions they will be entitled to a $700 input tax credit. The insurer forwards a cheque to the insured for $10,300.
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.
|
$12,100
|
G1
|
Payment for a sale made in the course of the insurance business.
|
GST on policy.
|
$1,100
|
1A
|
GST in respect of the sale made in the course of the insurance business.
|
Stamp duty on policy ($252)
|
Nil
|
Not applicable
|
Stamp duty on insurance is not included on the BAS.
|
Payment to insured ($10,300)
|
Nil
|
Not applicable
|
Not an acquisition. A decreasing adjustment will apply to this transaction as the insured was entitled to a partial input tax credit on the premium.
|
Decreasing adjustment applicable to settlement payment.
|
$300
(see calculation below)
|
1B
|
Amount of decreasing adjustment.
|
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 =
|
$10,300
|
+
|
0
|
-
|
0
|
x
|
|
11
|
|
|
|
|
|
|
|
|
11 - 0.7
|
=
|
$10,300
|
+
|
0
|
-
|
0
|
x
|
|
11
|
|
|
|
|
|
|
|
|
10.3
|
=
|
$11,000
|
|
|
|
|
|
|
|
DA =
|
1/11
|
x
|
$11,000
|
x
|
(1 - 0.7)
|
|
|
|
=
|
1/11
|
x
|
$11,000
|
x
|
0.3
|
|
|
|
=
|
$300
|
|
|
|
|
|
|
|
Amount to be shown at 1B on the BAS is $300.
Cash settlement - GST-free supply
The insured purchased building and contents insurance from a general insurer at a cost of $6,726. The policy premium consisted of:
Base premium (including FSL)
|
$6,000
|
GST on policy
|
$600
|
Stamp duty on policy
|
$126
|
Total cost of policy
|
$6,726
|
The insured is registered for GST and has notified the insurer of their entitlement to a 60% input tax credit on the policy premium. Under the terms and conditions of the policy, the insurer can adjust settlement amounts paid under the policy to reflect the insured's possible input tax credit entitlement on use of the settlement funds. There is no excess on this policy.
The insured makes a claim against the policy in relation to GST-free contents and the insurer assesses the damages as being $8,632 (GST-free). The insurer forwards a cheque for $8,632 to the insured.
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.
|
$6,600
|
G1
|
Payment for a sale made in the course of the insurance business.
|
GST on policy.
|
$600
|
1A
|
GST in respect of the sale made in the course of the insurance business.
|
Stamp duty on policy ($126)
|
Nil
|
Not applicable
|
Stamp duty on insurance is not included on the BAS.
|
Payment to insured ($8,632)
|
Nil
|
Not applicable
|
Not an acquisition. A decreasing adjustment will apply to this transaction as the insured was entitled to a partial input tax credit on the premium.
|
Decreasing adjustment applicable to settlement payment.
|
$332
(see calculation below)
|
1B
|
Amount of decreasing adjustment.
|
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 =
|
$8,632
|
+
|
0
|
-
|
0
|
x
|
|
11
|
|
|
|
|
|
|
|
|
11 - 0.6
|
=
|
$8,632
|
+
|
0
|
-
|
0
|
x
|
|
11
|
|
|
|
|
|
|
|
|
10.4
|
=
|
$9,130
|
|
|
|
|
|
|
|
DA =
|
1/11
|
x
|
$9,130
|
x
|
(1 - 0.6)
|
|
|
|
=
|
1/11
|
x
|
$9,130
|
x
|
0.4
|
|
|
|
=
|
$332
|
|
|
|
|
|
|
|
Amount to be shown at 1B on the BAS is $332.
Sections within Purchase of insurance policy and cash settlement to the insured
Last Modified: Monday, 14 May 2012