• Subrogation

    Insured entitled to full input tax credit

    Flowchart - Insured entitled to full input tax credit

    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 and pays $5,500 for the repairs.

    The insurer exercises their right of subrogation and recovers $3,000 from the party found at fault. The subrogation payment is received in a subsequent tax period.

    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 is not included on the activity statement.

    Payment to repairer.

    $5,500

    G11

    Acquisition is a non-capital purchase.

    GST portion of repairer's payment.

    $500

    1B

    GST on purchase.

    Subrogation payment on later activity statement ($3,000).

    Nil

    Not applicable

    A Division 19 increasing adjustment does not apply to this transaction as the insurer had no decreasing adjustment under Division 78.

      Last modified: 30 May 2014QC 16293