Purchase of insurance policy and reinstatement to third party

Insured entitled to full input tax credit - third party registered

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium.

The insured damages a third party's motor vehicle in an accident and the vehicle is taken to a panel beater for repairs. The insurer is advised that the cost to repair the third party's vehicle is $3,520 (GST-inclusive). The insurer contracts with the repairer and pays them $3,520 on completion of the repairs.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	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 repairer.	$3,520	G11	Acquisition is a non -capital purchase.
ITC for repairer payment.	$320	1B	GST on purchase.

Insured entitled to full input tax credit - third party not registered

The insured purchased a motor vehicle policy from a motor vehicle insurer for $763. The policy premium consisted of:

Base premium	$680
GST on policy	$68
Stamp duty on policy	$15
Total cost of policy	$763

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium.

The insured destroys a third party's empty wheelchair in an accident. The insurer is advised that the cost to replace the third party's GST-free wheelchair is $3,500 and contracts with a retailer to supply a replacement wheelchair.

Table: How the insurer would treat this situation on their activity statement

Description	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$748	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$68	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 supplier for GST-free wheelchair ($3,500).	$3,500	G11	The acquisition is a non-capital purchase. For reporting purposes, GST-free purchases are included at label G11. As there is no GST associated with this purchase, it will not form part of the label 1B amount. A decreasing adjustment does not apply to this transaction.

Insured not entitled to input tax credit - third party not registered

Reinstatement - taxable supply

The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

Base premium	$380
GST on policy	$38
Stamp duty on policy	$8
Total cost of policy	$426

The insured makes input taxed supplies and has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on the policy.

The insured destroys a third party's laptop computer in an accident. The insurer is advised of the accident and contracts with a retailer to replace the third party's laptop at a cost of $3,520 (GST-inclusive).

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$418	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$38	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($8).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to retailer.	$3,520	G11	Acquisition is a non-capital purchase.
ITC for retailer payment.	$320	1B	GST on purchase.

Reinstatement - GST-free supply (goods)

The insured purchased an insurance policy from a motor vehicle insurer for $763. The policy premium consisted of:

Base premium	$680
GST on policy	$68
Stamp duty on policy	$15
Total cost of policy	$763

The insured is registered for GST and makes input taxed supplies. The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium.

The insured destroys a third party's empty wheelchair in an accident. The insurer is advised that the cost to replace the third party's GST-free wheelchair is $3,520. The insurer provides the money for a new wheelchair directly to the supplier. There is no contractual relationship between the insurer and the supplier.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$748	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$68	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 supplier for GST-free wheelchair ($3,520).	Nil	Not applicable	Not an acquisition. A decreasing adjustment will apply to this transaction as the insured was not entitled to an input tax credit on the premium.
Decreasing adjustment applicable to settlement payment.	$320 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - no entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (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)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$3,520	+	0	−	0	×	11÷(11−0)
=	$3,520	+	0	−	0	×	11÷11
=	$3,520
DA =	1/11	×	$3,520	×	(1 − 0)
=	1/11	×	$3,520	×	1
=	$320

Amount to be shown at 1B on the activity statement is $320.

Reinstatement - GST-free supply (services)

The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

Base premium	$380
GST on policy	$38
Stamp duty on policy	$8
Total cost of policy	$426

The insured makes input taxed supplies and has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on the policy.

A third party is injured while on the insured's premises and requires medical treatment. The third party is treated by their own doctor. The GST-free cost of the doctor's service is $1,331. The insurer is then advised of the accident and arranges to pay the doctor's fees for the third party.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$418	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$38	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($8).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment for medical services at direction of insured ($1,331).	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to medical services payment. ($1,331).	$121 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - no entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (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)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$1,331	+	0	−	0	×	11÷(11−0)
=	$1,331	+	0	−	0	×	11÷11
=	$1,331
DA =	1/11	×	$1,331	×	(1 − 0)
=	1/11	×	$1,331	×	1
=	$121

Amount to be shown at 1B on the activity statement is $121.

Insured entitled to full input tax credit - third party registered

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium.

The insured damages a third party's motor vehicle in an accident and the vehicle is taken to a panel beater for a repair quote. The insurer is advised that the cost to repair the third party's vehicle is $6,600 (GST-inclusive). The third party is registered for GST and is entitled to claim a full input tax credit for the repairs. The insurer pays $6,000 directly to the third party.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	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 ($6,000).	Nil	Not applicable	Not an acquisition. No decreasing adjustment as insured entitled to full input tax credit on the premium.

Insured entitled to full input tax credit - third party not registered

Cash settlement - payment to third party

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium.

The insured damages a third party's property in an accident. The insurer is advised that the cost to repair the third party's property is $6,600 (GST-inclusive). The third party is not registered for GST and is not entitled to claim input tax credits for the repairs. The insurer pays $6600 directly to the third party.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	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 ($6,600).	Nil	Not applicable	Not an acquisition. No decreasing adjustment as insured entitled to full input tax credit on the premium.

Cash settlement - payment to supplier

The insured takes out a workers' compensation insurance policy with a workers' compensation insurer for $1,665. The policy premium consisted of:

Base premium	$1,500
GST on policy	$150
Stamp duty on policy	$15
Total cost of policy	$1,665

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

An employee of the insured is injured at work and receives treatment at the local doctor's surgery for the injury. The insured forwards the doctor's bill with the claim to the insurer. After receiving the claim, the insurer pays the doctor's GST-free costs of $1,700. There is no contractual relationship between the doctor and the insurer.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$1,650	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$150	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 doctor ($1,700).	Nil	Not applicable	Not an acquisition. No decreasing adjustment as insured entitled to full input tax credit on the premium.

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.

Table: How the insurer would treat this situation on their activity statement

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 × Settlement amount × (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)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$5,200	+	0	−	0	×	11÷(11−0.6)
=	$5,200	+	0	−	0	×	11÷10.4
=	$5,500
DA =	1/11	×	$5,500	×	(1 − 0.6)
=	1/11	×	$5,500	×	0.4
=	$200

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

Insured entitled to partial input tax credit - third party not registered

The insured takes out a workers' compensation insurance policy with a workers' compensation insurer for $12,352. The policy premium consisted of:

Base premium	$11,000
GST on policy	$1,100
Stamp duty on policy	$252
Total cost of policy	$12,352

The insured is registered for GST and has advised 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 under the policy and the insurer assesses the injury. The insurer agrees to pay the employee $8,790 in full settlement of the claim. The insurer forwards a cheque to the employee for the agreed amount.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$12,100	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$1,100	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($252).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to employee ($8,790).	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to employee 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 × Settlement amount × (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)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$8,790	+	0	−	0	×	11÷(11−0.7)
=	$8,790	+	0	−	0	×	11/10.3
=	$9,387
DA =	1/11	×	$9,387	×	(1 − 0.7)
=	1/11	×	$9,387	×	0.3
=	$256

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

Insured not entitled to input tax credit - third party not registered

The insured purchased public liability insurance from a general insurer for $426. The policy premium consisted of:

Base premium	$380
GST on policy	$38
Stamp duty on policy	$8
Total cost of policy	$426

The insured makes input taxed supplies and has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on the policy.

The insured injures a third party's pedigree dog in an accident. The third party is not registered for GST and is seeking compensation from the insured for the $737 (GST-inclusive) veterinary fees. The insurer is advised of the accident and forwards a cheque to the third party to cover the cost of the veterinary fees.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium inclusive of GST.	$418	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$38	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($8).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to third party ($737).	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to third party payment ($737).	$67 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - no entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (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)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$737	+	0	−	0	×	11÷(11−0)
=	$737	+	0	−	0	×	11÷11
=	$737
DA =	1/11	×	$737	×	(1 − 0)
=	1/11	×	$737	×	1
=	$67

Amount to be shown at 1B on the activity statement is $67.

See also:

• Purchase of insurance policy and reinstatement to the insured
• Purchase of insurance policy and cash settlement to the insured
• Purchase of GST-free insurance policy and reinstatement to the insured
• Purchase of GST-free insurance policy and cash settlement to the insured
• Purchase of input taxed insurance policy and cash settlement to the insured
• Subrogation