Insurers guide to the business activity statement instructions

Insured not entitled to input tax credit - excess paid to insurer

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is an $800 excess on this policy which must be paid to the insurer.

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 $6,270 (GST-inclusive). The insurer contracts with the panel beater and pays $6,270 for the repairs. Under the terms of the policy, the insured pays the $800 excess directly to the insurer.

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.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($15).	Nil	Not applicable	Stamp duty on insurance is not included on the BAS.
Payment to repairer.	$6,270	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$570	1B	GST on purchase.
Excess payment from insured ($800)	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the BAS.
Increasing Adjustment attributable to Excess payment.	$72.73 (see calculation below)	1A	Amount of increasing adjustment.

Increasing adjustment (IA) calculation - no 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 $800 = $72.73.

Amount to be shown at 1A on the BAS is $72.73.

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