• Insured registered for GST - the policy is directly connected with goods or real property located offshore

    Flowchart - Insured registered for GST - the policy is directly connected with goods or real property located offshore

    The insured purchases a building and contents policy for $2,771 from a general insurer located in Australia. The insured's building and contents are located 60% locally and 40% overseas. The policy premium consisted of:

    Base premium

    $2,600

    GST on local content of policy

    $156

    Stamp duty on policy

    $15

    Total cost of policy

    $2,771

    The insured has notified the insurer that they have a 30% entitlement to input tax credits on the local portion of the policy premium. A $200 excess is payable directly to the insurer for each claim made under the policy. Under the terms of the policy, the insurer in determining the payout amount can take into account the input tax credits the insured might be entitled to when it uses the settlement proceeds. The insured makes two separate claims:

    1. The contents of one of the overseas buildings is damaged. The damage is assessed as $A4,202. The insurer forwards a cheque for $A4,202 in full settlement of the claim to the insured.
    2. One of the local buildings is damaged. The damage is assessed as $A9,983. The insurer forwards a cheque for $A9,783 in full settlement of the claim to the insured.

    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.

    $2,756

    G1

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

    GST on local portion of policy.

    $156

    1A

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

    GST-free portion of policy.

    $1,040

    G3

    This is a GST-free supply 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 ($4,202)
    (in respect of offshore claim).

    Nil

    Not applicable

    A decreasing adjustment does not apply to this transaction.

    Excess payment from insured ($200).

    Nil

    Not applicable

    Payment is not for a supply, therefore it is not included on the activity statement.

    Payment to insured in full settlement of the local claim ($9,783).

    Nil

    Not applicable

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

    Decreasing adjustment applicable to settlement payment ($9,783).

    $640
    (see calculation below)

    1B

    Amount of decreasing adjustment.

    Excess payment from insured ($200).

    Nil

    Not applicable

    Payment is not for a supply, therefore it is not included on the activity statement.

    Overseas related payout

    Attention

    There is no section 78-18 increasing adjustment applicable to the excess payment from the insured regarding the overseas settlement. The insurer has not made creditable acquisitions directly for the purposes of settling the claim.

    End of attention

    Locally related payout

    Decreasing adjustment (DA) calculation - partial 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 =

    $9,783

    +

    0

    -

    0

    x

    11/(11-0.3)

    =

    $9,783

    +

    0

    -

    0

    x

    11/10.7

    =

    $10,057

     

     

     

     

     

     

    DA =

    1/11

    x

    $10,057

    x

    (1 - 0.3)

     

     

    =

    1/11

    x

    $10,057

    x

    0.7

     

     

    =

    $640

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $640.

    Attention

    There is no section 78-18 increasing adjustment applicable to the excess payment from the insured regarding the local settlement. The insurer has not made creditable acquisitions directly for the purposes of settling the claim.

    For accuracy and statistical purposes it is necessary to show the amounts at G1 and G3.

    End of attention
      Last modified: 30 May 2014QC 16293