• Purchase of insurance policy and reinstatement to the insured

    Insured entitled to full input tax credit - no excess

    Reinstatement - taxable supply

    Flowchart of the Reinstatement - taxable supply

    The insured purchased a comprehensive motor vehicle insurance policy from a motor vehicle insurer for $1,330. The policy premium consisted of:

    Base premium

    $1,200

    GST on policy

    $120

    Stamp duty on policy

    $10

    Total cost of policy

    $1,330

    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.

    The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater to repair the vehicle and pays $5,500 for 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.

    $1,320

    G1

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

    GST on policy.

    $120

    1A

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

    Stamp duty on policy ($10).

    Nil

    Not applicable

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

    Payment to repairer.

    $5,500

    G11

    Acquisition is a non-capital purchase.

    ITC for repairer payment.

    $500

    1B

    GST on purchase.

    Reinstatement - GST-free supply (goods)

    Flowchart - GST free supply (goods)

    The insured runs a seafood cafe and purchased contents insurance from a general insurer for $2,062. The policy premium consisted of:

    Base premium

    $1,850

    GST on policy

    $185

    Stamp duty on policy

    $27

    Total cost of policy

    $2,062

    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.

    The insured's cafe was broken into and some of the seafood stolen. The insurer assesses the loss of the seafood as being $1,540 (GST-free). The insurer contracts with a seafood wholesaler to replace the seafood stock and pays the supplier $1,540.

    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.

    $2,035

    G1

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

    GST on policy.

    $185

    1A

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

    Stamp duty on policy ($27).

    Nil

    Not applicable

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

    Payment to supplier for GST-free goods ($1,540).

    $1,540

    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.

    Reinstatement - GST-free supply (services)

    Flowchart- GST free supply (services)

    The insured purchased personal accident insurance from a workers' compensation insurer for $734. The policy premium consisted of:

    Base premium

    $660

    GST on policy

    $66

    Stamp duty on policy

    $8

    Total cost of policy

    $734

    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 has an accident at work and receives treatment at the local hospital. The insurer contracts with a rehabilitation hospital to supply GST-free rehabilitation services to the employee. Whilst the supply to the injured worker is a supply of a GST-free health service, the supply to the insurer under contract is not. It is a taxable supply. The insurer pays the hospital costs of $3,850 and will be entitled to an input tax credit of $350.

    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.

    $726

    G1

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

    GST on policy.

    $66

    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 hospital for a GST-free supply(subsection 38-60(1).

    $3,850

    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.

    Where the hospital makes a supply of GST-free rehabilitation services to the employee of the insured (the underlying supply), a supply of the service of making the underlying supply by the hospital to the insurer, in the course of settling insurance claims under the insurance policy of which the insurer is an insurer, is GST-free under subsection 38-60(1) to the extent the underlying supply is GST-free.

    However, the supply is not GST-free if the hospital and the insurer have agreed that the supply not be treated as a GST-free supply (subsection 38-60(1)).

      Last modified: 30 May 2014QC 16293