Goods and Services Tax Industry Issues
Insurance Industry Partnership

Excesses - making an acquisition

• Please note that the PDF version is the authorised version of this ruling.
  This publication is extracted from the Insurance Industry Partnership - issues register. See issue 17 of that register. This publication should be read in conjunction with the related content of that register where further context is required.

This publication provides you with the following level of protection: This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Issue

1. If an insurer settles a claim by making an acquisition and is entitled to an input tax credit under Division 11 rather than a decreasing adjustment under Division 78, and the insured pays an excess to the insurer, does the method statement in section 78-15 operate to provide an increasing adjustment?

ATO view

2. No.

3. Section 78-15 only applies if the conditions in section 78-10 are met. That is, section 78-15 provides for the amount of the decreasing adjustment, so there has to be an entitlement to a decreasing adjustment before section 78-15 can be applied. Section 78-10 sets out the circumstances where there is an entitlement to a decreasing adjustment. There will be a decreasing adjustment where the insurer makes a payment or a supply or both in settlement of the claim. There may be a decreasing adjustment if the insurer makes a payment or a supply or both in settlement of the claim. If the insurer makes an acquisition and is entitled to an input tax credit it will not have made a payment in settlement of the claim. It may however, very well be on supplying what it acquires to the insured. If that supply is not a GST-free or input taxed supply, the market value of the supply is not included in the method statement in section 78-15. As there has been no payment in settlement of the claim, the amounts in step 1 and step 2 are zero. If there has been an excess paid to the insurer there would be an amount in step 3. This would then appear to give rise to a negative decreasing adjustment. However, the ATO is of the view that in the scheme of the GST Act as a whole, it is not possible to have a negative decreasing adjustment. Section 17-10 provides that decreasing adjustments are to be subtracted from the net amount. Decreasing adjustments are, in the scheme of the Act, to decrease net amounts, a negative decreasing adjustment would act to increase net amounts.

References