• Insured entitled to full input tax credit - excess

    Flowchart - Insured entitled to full input tax credit - excess

    The insured renewed a business contents policy with a general insurer for $2,435. The business and contents were insured for $550 000 and 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. Under the terms and conditions of the policy, the insurer can adjust settlement amounts paid under the policy to reflect the insured's possible input tax credit entitlement on use of the settlement funds. There is a $5,000 excess on this policy.

    The business and all its contents were destroyed by fire, leaving nothing able to be salvaged. The insurer agrees to pay the insured, the full face value of the policy less the insured's possible ITC entitlement on use of the funds and excess, that is, $495,000.

    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 insured ($495,000).

    Nil

    Not applicable

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

      Last modified: 30 May 2014QC 16293