Edited version of private ruling

Authorisation Number: 1011679442091

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Ruling

Subject: GST and vehicle repair excess

Question

Was your payment of the excess to the repairer a GST inclusive amount?

Decision

Yes, your payment of the excess to the repairer was a GST inclusive amount.

Relevant facts and circumstances

You are a company. Your vehicles are insured with an insurer.

One of your vehicles recently got damaged in an accident. Under your insurance policy, there is an excess value for each claim.

The repairer sent a quotation for a specified amount to the insurer and it was accepted. The insurer wanted you to pay the excess in advance to the repairer and you paid it. The repairer sent you an invoice for the excess amount with nil GST included. The repairer claimed that there is no GST included in the excess.

Once the repairs were completed, the insurer paid the balance to the repairer and claimed an input tax credit. The repairer remitted as GST an amount to the ATO for the whole job.

Under the terms of the insurance policy, if the fault is with the other party, the insurer has to refund the excess paid back to you. Subsequently, it was established that the fault was with the other party. As reimbursement of the excess already paid by you, the insurer remitted a lesser amount only claiming that you could claim input tax credits for the remaining amount. However, you are unable to claim that amount from the ATO as you do not hold a valid tax invoice with the GST amount included.

You have researched the ATO website and find that the excess paid was inclusive of GST and the repairer should issue an invoice for a GST inclusive amount of the value of the excess. Otherwise you will be out of pocket.

Our records indicate that you are registered for GST.

Reasons for the decision

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.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

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

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

Section 9-10(1) of the GST Act provides that a supply is any form of supply whatsoever. Therefore, the smash repair services supplied by the repairer was a supply.

When the repairer's quotation to repair the damaged vehicle was approved by the insurer, the repairer and the insurer entered into a contract to provide repair services to the insurer.

As per this contract, the repairer supplied the repair services for consideration and the supply was made in the course of an enterprise carried on by the repairer. The supply was connected with Australia and the repairer was registered for GST. Automotive repair services are not GST-free or input taxed under any provision of the GST Act. Therefore, under section 9-5 of the GST Act, the repairer made a taxable supply of repair services to the insurer. The repairer incurred a GST liability for the total supply.

The total consideration for the repair services was some thousands of dollars. The repairer incurred a GST liability.

Goods and Services Tax Ruling GSTR 2006/10 (GSTR 2006/10) refers to insurance settlements and entitlements to input tax credits. Paragraphs 107-109 of GSTR 2006/10 refer to excess paid directly to a repairer and state:

107. If, on the other hand, the insured is liable under the policy to pay the excess to the repairer, and the repairer is not acting as agent of the insurer, the excess will be consideration for the supply the repairer is making to the insured. This is consistent with the UK Court of Appeal decision in Brown & Davis Ltd v Galbraith, where it was held that, although the primary contract was between the insurance company and the repairer for a supply of repair services, there was a second contract between the insured and the repairer requiring the insured to pay for the repairs only to the extent of the excess under the policy.

108. The payment of the excess by the insured is consideration for the supply of repair services to the value of the excess by the repairer. The insured, if registered for GST, may be entitled to an input tax credit. In this circumstance, the repairer will be required to provide a tax invoice in respect of the services made to the insured if requested.

109. The insurer is entitled to an input tax credit for the GST payable to the extent that the insurer pays, or is liable to pay, for the supply of the repairs made to it.

As mentioned above, the repairer entered into a contract with the insurer to provide repair services to the damaged vehicle. As per the terms of the insurance contract, you had an obligation to pay the excess on the insurance contract direct to the repairer. The insurer had an obligation to pay the balance to the repairer.

The repairer issued invoices to you and the insurer in their own right for the repair work carried out on the vehicle and not as an agent of the insurer.

Similarly, the repairer did not act as a collection agency on behalf of the insurer in respect of the excess paid by you.

As per paragraphs 107-109 of GSTR 2006/10, there was a second contract between you and the repairer requiring you to pay for the repairs only to the extent of the excess under the policy. As per the precedent of the UK Court of Appeal decision in Brown & Davis Ltd v Galbraith, the repairer made a taxable supply of repair services to you only up to the value of the excess.

You acquired the repair services for a creditable purpose and the supply was a taxable supply to you. You provided consideration for this supply and your were registered for GST. Therefore, under section 11-5 of the GST Act, you made a creditable acquisition when the repairer supplied repair services up to the value of the excess.

Under section 11-20 of the GST Act, you are entitled to the relevant input tax credit on this creditable acquisition. The GST inclusive value of this creditable acquisition was the excess amount. Therefore, you became entitled to an input tax credit based on this amount.

Subsection 29-70(2) of the GST Act provides that the supplier of a taxable supply must, within 28 days after the recipient of the supply requests it, give to the recipient a tax invoice for the supply, unless it is a recipient created tax invoice. Therefore, if you request a tax invoice from the repairer for the repair services supplied to you, the repairer will be obliged to provide you a tax invoice for the taxable supply within 28 days.