Insured entitled to partial input tax credit - excess paid to insurer

Flowchart Partial input tax credit paid to insurer

The insured purchased stock insurance from a general insurer at a cost of $5,525. The policy premium consisted of:

Base premium (including FSL)


GST on policy


Stamp duty on policy


Total cost of policy


The insured is registered for GST and has notified the insurer of their entitlement to a 90% input tax credit on the policy premium. The excess on this policy is $1,200 and is paid directly to the insurer.

The insured makes a claim against the policy and the insurer assesses the loss as being $13,409 (GST-inclusive). The insurer contracts with a wholesaler to replenish the stock and pays $13,409 to 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


Base premium inclusive of GST and FSL.



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

GST on policy.



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

Stamp duty on policy ($25).


Not applicable

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

Payment to wholesaler.



Acquisition is a non-capital purchase.

ITC for wholesaler payment.



GST on purchase.

Excess payment from insured ($1,200).


Not applicable

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

Increasing Adjustment attributable to Excess payment.

(see calculation below)


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 $1,200 = $109.09.

Amount to be shown at 1A on the activity statement is $109.09.

    Last modified: 30 May 2014QC 16293