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Ruling

Subject: GST and insurance settlement payment

Question 1:

Is goods and services tax (GST) payable on the insurance settlement payment of $XXXX, which is/was received in foreign dollars?

Answer 1:

No.

Question 2:

What are your GST reporting obligations (if any) in respect to the insurance settlement payment above?

Answer 2:

You are not required to report the insurance settlement payment of $XXXX in your activity statement(s).

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You owned an equipment that was purchased overseas, but was operated solely in Australia.

The equipment was insured with an Australian company ('AusCo').

The insurance policy was invoiced in foreign dollars and GST was also charged on the insurance premium. The insurance premium was paid on a quarterly basis. A copy of the tax invoice for the insurance premium (with an amount inclusive of GST) was provided.

You claimed input tax credits for the GST paid on the insurance premium.

The equipment was written off whilst in Australia.

An insurance settlement amount of $XXXX was paid to you in respect of the insurance policy.

AusCo advised you that there was no GST on the payout (that is insurance settlement amount) which was provided in a foreign currency.

A copy of the release document provides (amongst other things):

· The agreement is between AusCo (as the 'insurer') and you (as the 'insured').

· The details of the equipment and accident were given.

· The settlement amount was $XXXX.

· The insured hereby (amongst other things) release and discharge the insurer from all liability, actions, suits, demands and claims whatsoever which have arisen in anyway connected with the accident or matters detailed. You confirm the insurer's right to subrogation.

You did notify the insurer of your entitlement to claim input tax credits for the insurance premium, at or before a claim was made under the insurance policy.

A copy of the insurance policy between the relevant parties for the relevant equipment and period was provided.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, Section 9-5

A New Tax System (Goods and Services Tax) Act 1999, Section 78-45

Reasons for decisions

Issue 1

GST is payable on any taxable supply that you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act)

To be a taxable supply, all the requirements in section 9-5 of the GST Act must be satisfied, including the requirement that the supply is made for consideration.

Insurance is covered in Division 78 of the GST Act. Section 78-45 of the GST Act states:

78-45 Settlements of insurance claims do not give rise to taxable supplies  

(1) If, in settlement of a claim under an *insurance policy, an insurer:

(a) makes a payment of *money; or

(b) makes a supply; or

(c) 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.

(2) This section has effect despite section 9-15 (which is about consideration).

Further, Goods and Services Tax Ruling GSTR 2006/10 covers insurance settlements and entitlement to input tax credits.

Paragraphs 22 to 24 of GSTR 2006/10 state:

Insurance settlements

22. If, in settlement of a claim, an insurer makes:

· a payment of money;

· a supply; or

· a payment of money and a supply,

the payment or supply is not treated as consideration for an acquisition by the insurer. Therefore, the insurer is not entitled to an input tax credit in relation to the payment or supply made to the insured in settlement of the claim.

23. Furthermore, the payment or supply by the insurer is not consideration for a supply by the insured or any other entity that was entitled to an input tax credit on the premium for the policy. That is, the insured does not have a GST liability on the payment or supply received from the insurer in settlement of a claim. This is provided that, at or before a claim was first made under the policy since the last payment of a premium, the insured notified the insurer of its entitlement to claim input tax credits for the insurance premium it paid.

24. Where the insured does not inform the insurer of its entitlement to an input tax credit on its premiums, or understates its entitlement, the payment or supply by the insurer is treated as consideration for a supply by the insured to the extent of the understatement. The supply made by the insured is treated as a taxable supply whether or not the entity is registered or required to be registered, at the time of the settlement or at the time of the payment or supply by the insurer.

You have advised that you had an insurance policy with AusCo. GST was charged on the insurance premium and you claimed an input tax credit on the GST paid on the premium. You made an insurance claim under the policy for an accident that occurred in Australia. The insurance settlement amount of $XXXX (paid in foreign currency) was paid in respect of a claim under the insurance policy. Furthermore, you advise that you did notify the insurer of your entitlement to claim an input tax credit for the insurance premium that was paid at and before a claim was made under the insurance policy.

Accordingly, the insurance settlement payment (regardless of whether it is in AUD or foreign dollars) of $XXXX is not treated as consideration for a supply made by you (as the insured) as you claimed an input tax credit for the premium paid for the insurance policy and had notified the insurer of your entitlement to claim the input tax credit. You do not have a GST liability on the payment received from the insurer in settlement of the claim.

Issue 2

The factsheet: GST and insurance transactions completing your activity statement (NAT 10668) provides that you do not report at label G1 (total sales) amount of money 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 the claim. Further, you do not report any GST for this amount at label 1A (GST on sales).

Accordingly, as stated in Issue 1, you do not have a GST liability on the payment of $XXXX received from the insurer in settlement of an insurance claim, and have no GST reporting obligations in respect to the insurance settlement payment of $XXXX.

All public rulings and publications referred to in this ruling is available at the Australian Taxation Office website at www.ato.gov.au

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