Insurers guide to the business activity statement instructions

Insured not entitled to input tax credit - no excess

Reinstatement - taxable supply

The insured purchased a motor vehicle policy from a motor vehicle insurer for $1,330. The policy premium consisted of:

Base premium	$1,200
GST on policy	$120
Stamp duty on policy	$10
Total cost of policy	$1,330

The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on this policy.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater and pays $5,500 for the repairs.

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.	$1,320	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$120	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($10)	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to repairer.	$5,500	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$500	1B	GST on purchase.

Reinstatement - GST-free supply

The insured operates a money exchange business and purchased contents insurance from a general insurer for $1,057. The policy premium consisted of:

Base premium	$950
GST on policy	$95
Stamp duty on policy	$12
Total cost of policy	$1,057

The insured is registered for GST and makes only input taxed supplies. The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on this policy.

The insured makes a claim under the policy and advises the insurer that the contents damaged were all GST-free goods. The insurer arranges for a supplier to replace the damaged GST-free contents and pays the $6,325 to the supplier directly. There is a contractual arrangement 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.	$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 ($12)	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to supplier for GST-free supplies ($6,325).	$6,325	G11	The acquisition is a non-capital purchase. For reporting purposes, GST-free purchases are included at label G11. As there is no GST associated with this purchase, it will not form part of the label 1B amount. A decreasing adjustment does not apply to this transaction.
Decreasing adjustment applicable to supplier payment.	$575 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - no 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 =	$6,325	+	0	-	0	x		11
								11 - 0
=	$6,325	+	0	-	0	x		11
								11
=	$6,325

DA =	1/11	x	$6,325	x	(1 - 0)
=	1/11	x	$6,325	x	1
=	$575

Amount to be shown at 1B on the BAS is $575.

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