ATO Interpretative Decision

ATO ID 2005/235 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, an insured business operator, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it:

•

receives a payment from the insurer in settlement of a claim under a general insurance policy, and

•

informed the insurer, at the time of making the claim, of its entitlement to an input tax credit equal to the goods and services tax (GST) payable on the insurance premiums?

Decision

No, the entity is not making a taxable supply under section 9-5 of the GST Act, when it receives a payment from the insurer in settlement of a claim under a general insurance policy and it informed the insurer, at the time of making the claim, of its entitlement to an input tax credit equal to the GST payable on the insurance premiums.

Facts

The entity is a business operator that is registered for GST. The entity is insured under a general insurance policy.

The supply of the general insurance policy to the entity was a taxable supply. The entity is entitled to claim an input tax credit equal to the GST payable on the general insurance premiums.

The entity made a claim under the insurance policy. At the time of making the insurance claim, the entity informed the insurer that it was entitled to an input tax credit equal to the GST payable on the insurance premiums. The insurer made a payment to the entity in settlement of the claim.

Reasons for Decision

One of the requirements of a taxable supply is that an entity makes a supply for consideration (paragraph 9-5(a) of the GST Act).

Subsection 78-45(1) of the GST Act provides that if, in settlement of a claim under an insurance policy, an insurer:

•

makes a payment of money

•

makes a supply, or

•

makes both a payment of money and a supply

the payment or supply is not treated as consideration for a supply made by the entity insured, or by any entity (other than the entity insured) that was entitled to an input tax credit for the premium paid for the insurance policy.

The entity is entitled to input tax credits for the general insurance premiums it has paid. Therefore, under subsection 78-45(1) of the GST Act, the payment to the entity by the insurer is not consideration for a supply by the entity.

However, subsection 78-50(1) of the GST Act provides that the payment or supply is treated as consideration for a supply made by an entity if:

(a)

the entity paid all or a part of the premium, for the insurance policy, relating to the period during which the event giving rise to the claim happened

(b)

the entity, or the representative member of the GST group of which the entity is a member, was entitled to an input tax credit for the premium it paid

(c)

the entity:

•

did not, at or before the time a claim was first made under the insurance policy since the last payment of a premium, inform the insurer of the entitlement to an input tax credit for the premium it paid, or

•

in informing the insurer of the entitlement at or before that time, understated its extent, and

(d)

the insurance policy was not issued under a compulsory third party scheme.

It does not matter whether that entity is the entity insured, or whether the payment or supply is made to that entity or any other entity.

The entity is entitled to claim an input tax credit equal to the GST payable on the general insurance premiums and it informed the insurer of this entitlement at the time of making the claim. Therefore, subsection 78-50(1) of the GST Act does not apply to the insurance payment.

The operation of subsection 78-45(1) of the GST Act is such that the payment the insurer makes to the entity is not consideration for a supply and consequently paragraph 9-5(a) of the GST Act is not satisfied. Accordingly, the entity is not making a taxable supply under section 9-5 of the GST Act when it receives the payment from the insurer in settlement of the claim under the general insurance policy.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-15
   paragraph 9-5(a)
   section 78-45
   subsection 78-45(1)
   subsection 78-50(1)

Related ATO Interpretative Decisions
ATO ID 2005/233
ATO ID 2005/234

Keywords
Goods and services tax
GST insurance
Insured
GST insurance policy
Insurance settlement under an insurance policy

Business Line:  GST

Date of publication:  12 August 2005

ISSN: 1445-2782