• Purchase of insurance policy and reinstatement to third party

    Insured entitled to full input tax credit - third party registered

    Flowchart - Insured entitled to full input tax credit - third party registered

    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 is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium.

    The insured damages a third party's motor vehicle in an accident and the vehicle is taken to a panel beater for repairs. The insurer is advised that the cost to repair the third party's vehicle is $3,520 (GST-inclusive). The insurer contracts with the repairer and pays them $3,520 on completion of the repairs.

    The insurer would treat this situation on their activity statement as follows.

    Description of payment

    Amount shown on activity statement

    Activity statement 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 activity statement.

    Payment to repairer.

    $3,520

    G11

    Acquisition is a non -capital purchase.

    ITC for repairer payment.

    $320

    1B

    GST on purchase.

      Last modified: 30 May 2014QC 16293