• Insured entitled to partial input tax credit - no excess

    Reinstatement - taxable supply

    Flowchart - taxable supply

    The insured purchased building and contents insurance from a general insurer at a cost of $167,625. The policy premium consisted of:

    Base premium (including FSL)

    $150,000

    GST on policy

    $15,000

    Stamp duty on policy

    $2,625

    Total cost of policy

    $167,625

    The insured is registered for GST and has notified the insurer of their entitlement to a 70% input tax credit on the policy premium. There is no excess on this policy.

    The insured makes a claim against the policy and the insurer assesses the damages as being $8,800 (GST-inclusive). The insurer contracts with a builder to carry out the repair work and pays $8,800 directly to the builder.

    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 (including FSL) inclusive of GST.

    $165,000

    G1

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

    GST on policy.

    $15,000

    1A

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

    Stamp duty on policy ($2,625).

    Nil

    Not applicable

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

    Payment to builder.

    $8,800

    G11

    Acquisition is a non-capital purchase.

    ITC for builder payment.

    $800

    1B

    GST on purchase.

    Reinstatement - GST-free supply

    Flowchart - GST free supply

    The insured purchased building and contents insurance from a general insurer at a cost of $167,625. The policy premium consisted of:

    Base premium (including FSL)

    $150,000

    GST on policy

    $15,000

    Stamp duty on policy

    $2,625

    Total cost of policy

    $167,625

    The insured is registered for GST and has notified the insurer of their entitlement to a 70% input tax credit on the policy premium. There is no excess on this policy.

    The insured loses some GST-free items stored in the building. They make a claim against the policy and the insurer assesses the GST-free loss as $8,790. The insured arranges with a wholesaler to be re-supplied and the insurer pays the wholesaler direct. There is no contractual arrangement between the insurer and the wholesaler.

    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 (including FSL) inclusive of GST.

    $165,000

    G1

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

    GST on policy.

    $15,000

    1A

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

    Stamp duty on policy ($2,625).

    Nil

    Not applicable

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

    Payment to wholesaler.

    $8,790

    G11

    Acquisition is a non-capital purchase subject to a decreasing adjustment.

    Decreasing adjustment applicable to wholesaler payment ($8,790).

    $256
    (see calculation below)

    1B

    Amount of decreasing adjustment.

    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 =

    $8,790

    +

    0

    -

    0

    x

    11/(11-0.7)

    =

    $8,790

    +

    0

    -

    0

    x

    11/10.3

    =

    $9,387

     

     

     

     

     

     

    DA =

    1/11

    x

    $9,387

    x

    (1 - 0.7)

     

     

    =

    1/11

    x

    $9,387

    x

    0.3

     

     

    =

    $256

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $256.

      Last modified: 30 May 2014QC 16293