• 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)

    $5,000

    GST on policy

    $500

    Stamp duty on policy

    $25

    Total cost of policy

    $5,525

    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

    Reason

    Base premium inclusive of GST and FSL.

    $5,500

    G1

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

    GST on policy.

    $500

    1A

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

    Stamp duty on policy ($25).

    Nil

    Not applicable

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

    Payment to wholesaler.

    $13,409

    G11

    Acquisition is a non-capital purchase.

    ITC for wholesaler payment.

    $1,219

    1B

    GST on purchase.

    Excess payment from insured ($1,200).

    Nil

    Not applicable

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

    Increasing Adjustment attributable to Excess payment.

    $109.09
    (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 $1,200 = $109.09.

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

      Last modified: 30 May 2014QC 16293