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

    Cash settlement - payment to third party

    Flowchart - Cash settlement - payment to third party

    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 property in an accident. The insurer is advised that the cost to repair the third party's property is $6,600 (GST-inclusive). The third party is not registered for GST and is not entitled to claim input tax credits for the repairs. The insurer pays $6600 directly to the third party.

    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 third party ($6,600).

    Nil

    Not applicable

    Not an acquisition. No decreasing adjustment as insured entitled to full input tax credit on the premium.

    Cash settlement - payment to supplier

    Flowchart - Cash settlement - payment to supplier

    The insured takes out a workers' compensation insurance policy with a workers' compensation insurer for $1,665. The policy premium consisted of:

    Base premium

    $1,500

    GST on policy

    $150

    Stamp duty on policy

    $15

    Total cost of policy

    $1,665

    The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is no excess on this policy.

    An employee of the insured is injured at work and receives treatment at the local doctor's surgery for the injury. The insured forwards the doctor's bill with the claim to the insurer. After receiving the claim, the insurer pays the doctor's GST-free costs of $1,700. There is no contractual relationship between the doctor and the insurer.

    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.

    $1,650

    G1

    Payment for a sale made in the course of the insurance business.

    GST on policy.

    $150

    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 doctor ($1,700).

    Nil

    Not applicable

    Not an acquisition. No decreasing adjustment as insured entitled to full input tax credit on the premium.

      Last modified: 30 May 2014QC 16293