• Insured entitled to full input tax credit - excess paid directly to insurer

    Flowchart - Full input tax credit paid directly to insurer.

    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. There is an $800 excess on this policy that must be paid to the insurer.

    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. Under the terms of the policy, the insured pays the $800 excess directly to the insurer.

    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 repairer.

    $5,500

    G11

    Acquisition is a non-capital purchase.

    ITC for repairer payment.

    $500

    1B

    GST on purchase.

    Excess payment from insured ($800).

    Nil

    Not applicable

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

    Increasing Adjustment attributable to Excess payment.

    $72.73
    (see calculation below)

    1A

    Amount of increasing adjustment.

    Increasing adjustment (IA) calculation - full entitlement to input tax credits

    The section 78-18 increasing adjustment is calculated as follows:

    IA =1/11th of the amount that represents the extent to which the payment of excess relates to creditable acquisitions and creditable importations made by the insurer directly for the purposes of settling the claim.

    1/11th x 100% x $800 = $72.73.

    Amount to be shown at 1A on the activity statement is $72.73.

      Last modified: 30 May 2014QC 16293