Purchase of GST-free insurance policy and cash settlement to the insured

Insured not registered for GST - health insurance

The insured, who is not registered for GST, purchases health insurance from a health fund and pays an annual contribution of $1,080.

The insured requires a prosthesis costing $1,500. The prosthesis is GST-free. Under the terms of the policy, the insurer will pay the insured $1,275 (that is, 85% of the cost).

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium.	$1,080	G1	Payment for a sale made in the course of the insurance business.
GST-free base premium.	$1,080	G3	This is a GST-free supply made in the course of the insurance business.
Payment to insured ($1,275).	Nil	Not applicable	Not an acquisition. A decreasing adjustment does not apply to this transaction as the sale of the policy was GST-free.

There is no section 78-18 increasing adjustment applicable to the excess payment from the insured regarding the settlement. The insurer has not made creditable acquisitions directly for the purposes of settling the claim.

For accuracy and statistical purposes it is necessary to show the amounts at G1 and G3.

Insured not registered for GST - the policy is directly connected with goods or real property located offshore

The insured is a non-resident and purchases a building and contents policy for $1,697 from a general insurer located in Australia. The insured's building and contents are located overseas. The policy premium consisted of:

Base premium	$1,682
Stamp duty on policy	$15
Total cost of policy	$1,697

The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is a $200 excess on this insurance policy.

The building is damaged and the insurer is advised that the cost to repair the building is $3,500. The insurer pays the insured $3,300 for the repairs and the insured pays the $200 excess directly to the repairer.

Table: How the insurer would treat this situation on their activity statement

Description of payment	Amount shown on activity statement	Activity statement label	Reason
Base premium.	$1,682	G1	Payment for a sale made in the course of the insurance business.
GST-free base premium.	$1,682	G3	This is a GST-free supply made in the course of the insurance business.
Stamp duty on policy ($15).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Excess payment from insured ($200).	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the activity statement.
Payment to insured ($3,300).	Nil	Not applicable	Not an acquisition. A decreasing adjustment does not apply to this transaction as the supply of the policy was GST-free.

There is no section 78-18 increasing adjustment applicable to the excess payment from the insured regarding the settlement. The insurer has not made creditable acquisitions directly for the purposes of settling the claim.

For accuracy and statistical purposes it is necessary to show the amounts at G1 and G3.

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 input taxed insurance policy and cash settlement to the insured
• Subrogation