Insurers guide to the business activity statement instructions

Insured entitled to partial input tax credit - third party not registered

The insured takes out a workers' compensation insurance policy with a workers' compensation insurer for $12,352. The policy premium consisted of:

Base premium	$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 advised the insurer of their entitlement to a 70% input tax credit on the policy premium. There is no excess on this policy.

The insured makes a claim under the policy and the insurer assesses the injury. The insurer agrees to pay the employee $8,790 in full settlement of the claim. The insurer forwards a cheque to the employee for the agreed amount.

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 employee ($8,790)	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to employee payment ($8,790).	$256 (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 =	$8,790	+	0	-	0	x		11
								11 - 0.7
=	$8,790	+	0	-	0	x		11
								10.3
=	$9,387

DA =	1/11	x	$9,387	x	(1 - 0.7)
=	1/11	x	$9,387	x	0.3
=	$256

Amount to be shown at 1B on the BAS is $256.

Sections within Purchase of insurance policy and reinstatement to third party

• Insured entitled to full input tax credit - third party not registered
• Insured not entitled to input tax credit - third party not registered
• Insured entitled to full input tax credit - third party registered
• Insured entitled to full input tax credit - third party not registered
• Insured entitled to partial input tax credit - third party registered
• Insured entitled to partial input tax credit - third party not registered
• Insured not entitled to input tax credit - third party not registered