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  • Purchase of insurance policy and reinstatement to third party

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    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.

    Table: How the insurer would treat this situation on their activity statement

    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.

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

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

    The insured purchased a motor vehicle policy from a motor vehicle insurer for $763. The policy premium consisted of:

    Base premium

    $680

    GST on policy

    $68

    Stamp duty on policy

    $15

    Total cost of policy

    $763

    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 destroys a third party's empty wheelchair in an accident. The insurer is advised that the cost to replace the third party's GST-free wheelchair is $3,500 and contracts with a retailer to supply a replacement wheelchair.

    Table: How the insurer would treat this situation on their activity statement

    Description

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $748

    G1

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

    GST on policy.

    $68

    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 supplier for GST-free wheelchair ($3,500).

    $3,500

    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.

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

    Reinstatement - taxable supply

    Flowchart - Reinstatement - taxable supply

    The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

    Base premium

    $380

    GST on policy

    $38

    Stamp duty on policy

    $8

    Total cost of policy

    $426

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

    The insured destroys a third party's laptop computer in an accident. The insurer is advised of the accident and contracts with a retailer to replace the third party's laptop at a cost of $3,520 (GST-inclusive).

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $418

    G1

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

    GST on policy.

    $38

    1A

    GST in respect of the sale made in the course of the insurance business.

    Stamp duty on policy ($8).

    Nil

    Not applicable

    Stamp duty on insurance is not included on the activity statement.

    Payment to retailer.

    $3,520

    G11

    Acquisition is a non-capital purchase.

    ITC for retailer payment.

    $320

    1B

    GST on purchase.

    Reinstatement - GST-free supply (goods)

    Flowchart - Reinstatement - GST-free supply (goods)

    The insured purchased an insurance policy from a motor vehicle insurer for $763. The policy premium consisted of:

    Base premium

    $680

    GST on policy

    $68

    Stamp duty on policy

    $15

    Total cost of policy

    $763

    The insured is registered for GST and makes input taxed supplies. The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium.

    The insured destroys a third party's empty wheelchair in an accident. The insurer is advised that the cost to replace the third party's GST-free wheelchair is $3,520. The insurer provides the money for a new wheelchair directly to the supplier. There is no contractual relationship between the insurer and the supplier.

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $748

    G1

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

    GST on policy.

    $68

    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 supplier for GST-free wheelchair ($3,520).

    Nil

    Not applicable

    Not an acquisition. A decreasing adjustment will apply to this transaction as the insured was not entitled to an input tax credit on the premium.

    Decreasing adjustment applicable to settlement payment.

    $320
    (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 × Settlement amount × (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 ITC)

     Table: Example of calculating the settlement amount

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $3,520

    +

    0

    0

    ×

    11÷(11−0)

    =

    $3,520

    +

    0

    0

    ×

    11÷11

    =

    $3,520

     

     

     

     

     

     

    DA =

    1/11

    ×

    $3,520

    ×

    (1 − 0)

     

     

    =

    1/11

    ×

    $3,520

    ×

    1

     

     

    =

    $320

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $320.

    Reinstatement - GST-free supply (services)

    Flowchart - Reinstatement - GST-free supply (services)

    The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

    Base premium

    $380

    GST on policy

    $38

    Stamp duty on policy

    $8

    Total cost of policy

    $426

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

    A third party is injured while on the insured's premises and requires medical treatment. The third party is treated by their own doctor. The GST-free cost of the doctor's service is $1,331. The insurer is then advised of the accident and arranges to pay the doctor's fees for the third party.

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $418

    G1

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

    GST on policy.

    $38

    1A

    GST in respect of the sale made in the course of the insurance business.

    Stamp duty on policy ($8).

    Nil

    Not applicable

    Stamp duty on insurance is not included on the activity statement.

    Payment for medical services at direction of insured ($1,331).

    Nil

    Not applicable

    Not an acquisition. Decreasing adjustment will apply to this payment.

    Decreasing adjustment applicable to medical services payment. ($1,331).

    $121
    (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 × Settlement amount × (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 ITC)

     Table: Example of calculating the settlement amount

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $1,331

    +

    0

    0

    ×

    11÷(11−0)

    =

    $1,331

    +

    0

    0

    ×

    11÷11

    =

    $1,331

     

     

     

     

     

     

    DA =

    1/11

    ×

    $1,331

    ×

    (1 − 0)

     

     

    =

    1/11

    ×

    $1,331

    ×

    1

     

     

    =

    $121

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $121.

    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 a repair quote. The insurer is advised that the cost to repair the third party's vehicle is $6,600 (GST-inclusive). The third party is registered for GST and is entitled to claim a full input tax credit for the repairs. The insurer pays $6,000 directly to the third party.

    Table: How the insurer would treat this situation on their activity statement

    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 ($6,000).

    Nil

    Not applicable

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

    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.

    Table: How the insurer would treat this situation on their activity statement

    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.

    Table: How the insurer would treat this situation on their activity statement

    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.

    Insured entitled to partial input tax credit - third party registered

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

    The insured purchased a motor vehicle policy from a motor vehicle insurer for $697. The policy premium consisted of:

    Base premium

    $620

    GST on policy

    $62

    Stamp duty on policy

    $15

    Total cost of policy

    $697

    The insured is registered for GST and has notified the insurer of their entitlement to a 60% input tax credit on the policy premium. There is no excess on this policy.

    The insured damages a third party's vehicle. The third party is registered for GST. The insurer is advised that the cost to repair the third party's vehicle is $5500 (GST-inclusive) and the third party has a 60% entitlement to claim input tax credits on the cost of repairs. The insurer pays the third party $5,200 towards the cost of the repairs.

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $682

    G1

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

    GST on policy.

    $62

    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 ($5,200).

    Nil

    Not applicable

    Not an acquisition. Decreasing adjustment will apply to this payment.

    Decreasing adjustment applicable to third party payment ($5,200).

    $200
    (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 × Settlement amount × (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 ITC)

     Table: Example of calculating the settlement amount

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $5,200

    +

    0

    0

    ×

    11÷(11−0.6)

    =

    $5,200

    +

    0

    0

    ×

    11÷10.4

    =

    $5,500

     

     

     

     

     

     

    DA =

    1/11

    ×

    $5,500

    ×

    (1 − 0.6)

     

     

    =

    1/11

    ×

    $5,500

    ×

    0.4

     

     

    =

    $200

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $200.

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

    Flowchart - 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.

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement 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 activity statement.

    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 × Settlement amount × (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 ITC)

     Table: Example of calculating the settlement amount

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $8,790

    +

    0

    0

    ×

    11÷(11−0.7)

    =

    $8,790

    +

    0

    0

    ×

    11/10.3

    =

    $9,387

     

     

     

     

     

     

    DA =

    1/11

    ×

    $9,387

    ×

    (1 − 0.7)

     

     

    =

    1/11

    ×

    $9,387

    ×

    0.3

     

     

    =

    $256

     

     

     

     

     

     

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

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

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

    The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

    Base premium

    $380

    GST on policy

    $38

    Stamp duty on policy

    $8

    Total cost of policy

    $426

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

    The insured injures a third party's pedigree dog in an accident. The third party is not registered for GST and is seeking compensation from the insured for the $737 (GST-inclusive) veterinary fees. The insurer is advised of the accident and forwards a cheque to the third party to cover the cost of the veterinary fees.

    Table: How the insurer would treat this situation on their activity statement

    Description of payment

    Amount shown on activity statement

    Activity statement label

    Reason

    Base premium inclusive of GST.

    $418

    G1

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

    GST on policy.

    $38

    1A

    GST in respect of the sale made in the course of the insurance business.

    Stamp duty on policy ($8).

    Nil

    Not applicable

    Stamp duty on insurance is not included on the activity statement.

    Payment to third party ($737).

    Nil

    Not applicable

    Not an acquisition. Decreasing adjustment will apply to this payment.

    Decreasing adjustment applicable to third party payment ($737).

    $67
    (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 × Settlement amount × (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 ITC)

     Table: Example of calculating the settlement amount

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $737

    +

    0

    0

    ×

    11÷(11−0)

    =

    $737

    +

    0

    0

    ×

    11÷11

    =

    $737

     

     

     

     

     

     

    DA =

    1/11

    ×

    $737

    ×

    (1 − 0)

     

     

    =

    1/11

    ×

    $737

    ×

    1

     

     

    =

    $67

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $67.

    See also:

      Last modified: 25 May 2017QC 16293