• 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).

    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.

    $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.

    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.

    $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 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 ITC)

     

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $3,520

    +

    0

    -

    0

    x

    11/(11-0)

    =

    $3,520

    +

    0

    -

    0

    x

    11/11

    =

    $3,520

     

     

     

     

     

     

    DA =

    1/11

    x

    $3,520

    x

    (1 - 0)

     

     

    =

    1/11

    x

    $3,520

    x

    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.

    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.

    $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 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 ITC)

     

     

    Step 1

     

    Step 2

     

    Step 3

     

    Step 4

    Settlement amount =

    $1,331

    +

    0

    -

    0

    x

    11/(11-0)

    =

    $1,331

    +

    0

    -

    0

    x

    11/11

    =

    $1,331

     

     

     

     

     

     

    DA =

    1/11

    x

    $1,331

    x

    (1 - 0)

     

     

    =

    1/11

    x

    $1,331

    x

    1

     

     

    =

    $121

     

     

     

     

     

     

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

      Last modified: 30 May 2014QC 16293