If you're registered for GST, you can claim a full or partial credit for the GST included in an insurance policy premium covering a business asset.
Tell your insurer you're registered for GST as this will affect your GST liability on any settlements.
If you're eligible for a GST credit on an insurance policy you can claim it through your activity statement. You can only claim a GST credit for the part of the insurance relating to your business.
Generally, GST is charged on insurance policies other than:
- life insurance (these are input taxed)
- health insurance policies (these are GST-free).
You can't claim a GST credit for any part of your insurance that relates to:
- input-taxed sales you make
- things you use for private or domestic purposes.
In most circumstances you must hold a valid tax invoice to claim back any GST you've paid.
Find out about:
- Claiming GST credits
- Lodging your BAS or GST annual return
- Input-taxed sales
- GSTR 2006/10 Goods and services tax: insurance settlements and entitlement to input tax credits
If GST is included in an insurance premium, include the price of the insurance premium less the amount of stamp duty at G11 (non-capital purchases).
If you use the:
- accounts method, report one-eleventh of the amount of the premium (less any stamp duty) at 1B (GST on purchases)
- calculation worksheet method, use the worksheet to work out how much to report at 1B (GST on purchases).
You can't claim a GST credit on compulsory third party motor vehicle insurance premiums where the cover started before 1 July 2003.
Report at G1 (total sales) the amount of the settlement you must pay GST on.
This rule does not apply if you receive a settlement amount under a compulsory third-party insurance scheme.
If you are using the:
- accounts method, report the amount of GST you must pay on the settlement amount at 1A (GST on sales)
- calculation worksheet method, use the worksheet to calculate how much GST is to be reported at 1A (GST on sales).
Do not report amounts for any of the following:
- money, digital currency or goods you receive from your insurer to settle your claim under an insurance policy – provided you told your insurer the amount of GST you can claim on the policy premium, before or when you made a claim
- settlement of your claim against another party where you are not the insured party and the insurer pays the settlement amount directly to you
- settlement of your claim against another party, where the insured receives the amount as settlement from their insurer and then provides it to you.
You can't claim GST credits on any excess that you pay to your insurer.
If you pay an excess to someone other than your insurer you can claim a credit on any GST paid if:
- the party you pay is not acting as an agent for your insurer
- you receive a tax invoice.
Report the amount of the excess at G11 (non-capital purchases) or at G10 (capital purchases).
If you're using the:
- accounts method, report any GST credits you can claim at 1B (GST on purchases)
- calculation worksheet method, use the worksheet to calculate the amount to report at 1B (GST on purchases).
Find out about:
The settlement amount paid on an insurance claim is based on the terms of your contract with the insurer, not on GST legislation. However, in general, the insurer will only compensate you for the actual loss incurred. For example, if you are entitled to claim 100% of the GST credits, the insurer will reduce that GST credit amount from the payment made to you on a settlement.
Example: GST credits and insurance settlements
Repairs to Marilyn's business premises cost $5,500, including GST. Marilyn is registered for GST. When she pays for the repairs, she is entitled to claim 100% of the GST credits. She claims a GST credit of $500, which is 1/11th of the payment she made to the repairer. The insurer takes that into account and pays her $5,000.
The insurer may provide Marilyn a settlement statement showing the net settlement as $5,000 (the cost of repairs $5,500 less the GST credit amount of $500 Marilyn is entitled to claim).End of example
Notifying an insurer of your GST registration
You must notify your insurer of your entitlement to GST credits on your insurance premium when, or before, any claim is made. You will not have a GST liability on a settlement from an insurance claim if you have done this.
If you have not told your insurer your GST status and the proportion of GST credits relating to your business that you can claim, you may have to pay GST when your claim is settled.
You will have to pay GST on any settlement amount you receive if you have understated, to your insurer, the GST credit you can claim on the premium.
Paying GST on part of the settlement
If you don't tell your insurer you can claim the GST credit, you must:
- work out the percentage of GST you could claim on the premium
- pay GST on that percentage of the settlement amount.
If you understate the GST you can claim on the premium, you must:
- work out the percentage of GST you told your insurer you could claim for the purchase
- work out the percentage of GST you can actually claim
- work out the difference between these percentages
- pay GST on that percentage of the settlement amount.
You can't claim any GST credit if you make a payment of money, digital currency or goods to a third party in settlement of their claim against you where that payment is covered by the settlement of a claim you have made against your insurer.
Car insurance settlements
Claiming GST credits in car insurance settlements depends on who the insurer pays and whether the insurer has a contract with the repairer to repair cars it has provided policies for.
Generally, you cannot claim a GST credit for payments your insurer makes to a service provider if the insurer:
- has a contract with a supplier to provide a service to you, and
- pays the settlement directly to the service provider.
You can, however, claim a GST credit for payments your insurer makes to the service provider on your behalf.
The following examples illustrate four situations:
- Example 1: Betty: insurer has no contract with the repairer
- Example 2: Sarah: insurer has no contractual arrangement with the repairer, but pays the repair account directly on behalf of the driver
- Example 3: Tom: insurer has a contractual arrangement with the repairer to repair cars the insurer's policies cover (a so-called 'preferred supplier')
- Example 4: Bill: the insured person is not registered for GST.
Betty is registered for GST and holds a car insurance policy with ABC Insurance. She tells ABC she can claim a 100% GST credit for the GST included in the policy price.
Betty has a car accident and ABC insurance agrees the damage to her car will cost $5,500 (including GST) to fix. Betty pays repair costs of $5,500.
ABC Insurance pays Betty $5,000 in full settlement of her claim. Betty claims a GST credit of $500 ($5,500 × 1/11th) when she lodges her next activity statement.
Betty's out -of-pocket expense is zero (that is, $5,000 from the insurer plus $500 GST credit).
Because Betty told ABC she could claim a GST credit for her insurance premium, she does not have a GST liability on the payment received from ABC in settlement of her claim.
Sarah holds an insurance policy with XYZ Insurance. She uses her car 100% for business purposes and can claim 100% GST credits on the premium. When she damages her car, XYZ Insurance:
- agrees the damage will cost $5,500 (including GST) to fix
- instructs a repairer to repair the vehicle.
XYZ has no contract with the repairer.
Sarah asks XYZ Insurance to pay the repairer directly the amount less GST ($5,000). Sarah pays the remaining $500.
As XYZ Insurance paid the repairer on behalf of Sarah when she asked them to (as a simplified payment arrangement), Sarah is considered to have paid $5,500 for the repairs. Sarah can claim a GST credit of $500 (1/11th of $5,500).
Tom holds an insurance policy with Sure Insurance. He uses his car for business purposes and can claim 100% GST credits on the premium. When he damages the car, Sure Insurance:
- agrees that the car can be repaired at a cost of $5,500 (including GST)
- pays a repairer to make the repairs.
Sure Insurance has a contract with the repairer to repair vehicles for Sure Insurance policy holders.
Sure Insurance pays the repairer the full $5,500 and claims a GST credit of $500. Tom does not make any payment to the repairer and cannot claim a GST credit.
Bill has a car accident and repairs cost $5,500. Bill is not registered for GST, so he cannot claim a GST credit for GST included in the cost of the repairs.
Bill makes a claim under his insurance policy. He is covered for the full, GST-inclusive cost of the repairs and the insurer pays Bill $5,500.End of example