• Insured entitled to partial input tax credit - third party registered

    Flowchart - Insured entitled to partial input tax credit - third party registered

    The insured purchased a motor vehicle policy from a motor vehicle insurer for $697. The policy premium consisted of:

    Base premium

    $620

    GST on policy

    $62

    Stamp duty on policy

    $15

    Total cost of policy

    $697

    The insured is registered for GST and has notified the insurer of their entitlement to a 60% input tax credit on the policy premium. There is no excess on this policy.

    The insured damages a third party's vehicle. The third party is registered for GST. The insurer is advised that the cost to repair the third party's vehicle is $5500 (GST-inclusive) and the third party has a 60% entitlement to claim input tax credits on the cost of repairs. The insurer pays the third party $5,200 towards the cost of the repairs.

    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.

    $682

    G1

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

    GST on policy.

    $62

    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 third party ($5,200).

    Nil

    Not applicable

    Not an acquisition. Decreasing adjustment will apply to this payment.

    Decreasing adjustment applicable to third party payment ($5,200).

    $200
    (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 =

    $5,200

    +

    0

    -

    0

    x

    11/(11-0.6)

    =

    $5,200

    +

    0

    -

    0

    x

    11/10.4

    =

    $5,500

     

     

     

     

     

     

    DA =

    1/11

    x

    $5,500

    x

    (1 - 0.6)

     

     

    =

    1/11

    x

    $5,500

    x

    0.4

     

     

    =

    $200

     

     

     

     

     

     

    Amount to be shown at 1B on the activity statement is $200.

      Last modified: 30 May 2014QC 16293