Insured entitled to full input tax credit
The insured purchased a comprehensive motor vehicle insurance policy from a motor vehicle insurer for $1,330. The policy premium consisted of:
|
Base premium |
$1,200 |
|
GST on policy |
$120 |
|
Stamp duty on policy |
$10 |
|
Total cost of policy |
$1,330 |
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.
The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater and pays $5,500 for the repairs.
The insurer exercises their right of subrogation and recovers $3,000 from the party found at fault. The subrogation payment is received in a subsequent tax period.
|
Description of payment |
Amount shown on activity statement |
Activity statement label |
Reason |
|---|---|---|---|
|
Base premium inclusive of GST. |
$1,320 |
G1 |
Payment for a sale made in the course of the insurance business. |
|
GST on policy. |
$120 |
1A |
GST in respect of the sale made in the course of the insurance business. |
|
Stamp duty on policy ($10). |
Nil |
Not applicable |
Stamp duty on insurance is not included on the activity statement. |
|
Payment to repairer. |
$5,500 |
G11 |
Acquisition is a non-capital purchase. |
|
GST portion of repairer's payment. |
$500 |
1B |
GST on purchase. |
|
Subrogation payment on later activity statement ($3,000). |
Nil |
Not applicable |
A Division 19 increasing adjustment does not apply to this transaction as the insurer had no decreasing adjustment under Division 78. |
Insured entitled to partial input tax credit
The insured purchased building and contents insurance from a general insurer at a cost of $12,352. The policy premium consisted of:
|
Base premium (including fire service levy) |
$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 notified the insurer of their entitlement to a 70% input tax credit on the policy premium. Under the terms and conditions of the policy, the insurer can adjust settlement amounts paid under the policy to reflect the insured's input tax credit entitlement. There is no excess on this policy.
The insured makes a claim against the policy and the insurer assesses the damages as being $11,000 (GST-inclusive). The insurer forwards a cheque to the insured for $10,300 as the insured would be entitled to an input tax credit of $700 if it spent the money on an acquisition for which it was entitled to 70% input tax credits. The $700 is 70% of the GST included in an $11,000 GST-inclusive acquisition. The insurer exercises its right of subrogation and recovers $8,034 from the party found at fault. The subrogation payment is received in a subsequent tax period.
|
Description of payment |
Amount shown on activity statement |
Activity statement label |
Reason |
|---|---|---|---|
|
Base premium inclusive of fire service levy and 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 insured ($10,300). |
Nil |
Not applicable |
Not an acquisition. Decreasing adjustment will apply to this payment. |
|
Decreasing adjustment applicable to payment ($10,300). |
$300 |
1B |
Amount of decreasing adjustment. |
|
Subrogation payment on later activity statement ($8,034). |
Nil |
Not applicable |
Not an acquisition. Increasing adjustment will apply to this subrogation payment. |
|
Increasing adjustment applicable to subrogation payment ($8,034). |
$234 |
1A |
Amount of increasing 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) |
|
|
Step 1 |
|
Step 2 |
|
Step 3 |
|
Step 4 |
|---|---|---|---|---|---|---|---|
|
Settlement amount = |
$10,300 |
+ |
0 |
− |
0 |
× |
11÷(11−0.7) |
|
= |
$10,300 |
+ |
0 |
− |
0 |
× |
11÷10.3 |
|
= |
$11,000 |
|
|
|
|
|
|
|
DA = |
1/11 |
× |
$11,000 |
× |
(1 − 0.7) |
|
|
|
= |
1/11 |
× |
$11,000 |
× |
0.3 |
|
|
|
= |
$300 |
|
|
|
|
|
|
Amount to be shown at 1B on the activity statement is $300.
Corrected decreasing adjustment (DA) calculation - partial entitlement to input tax credits
The exercise of the insurer's right of subrogation effectively overstates the original decreasing adjustment. Division 19 requires a correcting calculation to be performed. The correction is the difference between what was originally claimed and what should have been claimed, that is, the difference between the DA using $10,300 and a DA using $2266 ($10,300 less $8,034).
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) |
|
|
Step 1 |
|
Step 2 |
|
Step 3 |
|
Step 4 |
|---|---|---|---|---|---|---|---|
|
Settlement amount = |
$2,266 |
+ |
0 |
− |
0 |
× |
11÷(11−0.7) |
|
= |
$2,266 |
+ |
0 |
− |
0 |
× |
11÷10.3 |
|
= |
$2,420 |
|
|
|
|
|
|
|
DA = |
1/11 |
× |
$2,420 |
× |
(1 − 0.7) |
|
|
|
= |
1/11 |
× |
$2,420 |
× |
0.3 |
|
|
|
= |
$66 |
|
|
|
|
|
|
|
Subrogation Adjustment = |
Original DA |
- |
Corrected DA |
|
= |
$300 |
- |
$66 |
|
= |
$234 |
|
|
Amount to be shown at 1A on the activity statement as an increasing adjustment is $234.
Insured not entitled to input tax credit
The insured purchased a contents insurance policy from a general insurer for $1,057. The policy premium consisted of:
|
Base premium |
$950 |
|
GST on policy |
$95 |
|
Stamp duty on policy |
$12 |
|
Total cost of policy |
$1,057 |
The insured is registered for GST and makes only input taxed supplies. The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on this policy.
The insured makes a claim and the insurer is advised that the cost to repair the damaged contents is $6,325 (GST-inclusive). The insurer pays the insured $6,325 in full settlement of the claim.
The insurer exercises their right of subrogation and recovers $3,300 from the party found at fault. The subrogation payment is received in a subsequent tax period.
|
Description of payment |
Amount shown on activity statement |
Activity statement label |
Reason |
|---|---|---|---|
|
Base premium inclusive of GST. |
$1,045 |
G1 |
Payment for a sale made in the course of the insurance business. |
|
GST on policy. |
$95 |
1A |
GST in respect of the sale made in the course of the insurance business. |
|
Stamp duty on policy ($12). |
Nil |
Not applicable |
Stamp duty on insurance is not included on the activity statement. |
|
Payment to insured ($6,325). |
Nil |
Not applicable |
Not an acquisition. Decreasing adjustment will apply to this payment. |
|
Decreasing adjustment applicable to payment ($6,325). |
$575 |
1B |
Amount of decreasing adjustment. |
|
Subrogation payment on later activity statement ($3,300). |
Nil |
Not applicable |
Not an acquisition. Increasing adjustment will apply to this payment. |
|
Increasing adjustment applicable to subrogation payment ($3,300). |
$300 |
1A |
Amount of Increasing 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) |
|
|
Step 1 |
|
Step 2 |
|
Step 3 |
|
Step 4 |
|---|---|---|---|---|---|---|---|
|
Settlement amount = |
$6,325 |
+ |
0 |
− |
0 |
× |
11÷(11−0) |
|
= |
$6,325 |
+ |
0 |
− |
0 |
× |
11÷11 |
|
= |
$6,325 |
|
|
|
|
|
|
|
DA = |
1/11 |
× |
$6,325 |
× |
(1 − 0) |
|
|
|
= |
1/11 |
× |
$6,325 |
× |
1 |
|
|
|
= |
$575 |
|
|
|
|
|
|
Amount to be shown at 1B on the activity statement is $575.
Corrected decreasing adjustment (DA) calculation - no entitlement to input tax credits
The exercise of the insurer's right of subrogation effectively overstates the original decreasing adjustment. Division 19 requires a correcting calculation to be performed. The correction is the difference between what was originally claimed and what should have been claimed, that is, the difference between the DA using $6,325 and a DA using $3,025 ($6,325 less $3,300).
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) |
|
|
Step 1 |
|
Step 2 |
|
Step 3 |
|
Step 4 |
|---|---|---|---|---|---|---|---|
|
Settlement amount = |
$3,025 |
+ |
0 |
− |
0 |
× |
11÷(11−0) |
|
= |
$3,025 |
+ |
0 |
− |
0 |
× |
11÷11 |
|
= |
$3,025 |
|
|
|
|
|
|
|
DA = |
1/11 |
× |
$3,025 |
× |
(1 − 0) |
|
|
|
= |
1/11 |
× |
$3,025 |
× |
1 |
|
|
|
= |
$275 |
|
|
|
|
|
|
|
Subrogation Adjustment = |
Original DA |
- |
Corrected DA |
|
= |
$575 |
- |
$275 |
|
= |
$300 |
|
|
Amount to be shown at 1A on the activity statement as an increasing adjustment is $300.
See also:
- Purchase of insurance policy and reinstatement to the insured
- Purchase of insurance policy and cash settlement to the insured
- Purchase of insurance policy and reinstatement to third party
- 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