Purchase of insurance policy and reinstatement to the insured

Insured entitled to full input tax credit - no excess

Reinstatement - taxable supply

The insured purchased a comprehensive motor vehicle insurance policy from a motor vehicle insurer for $1,330. The policy premium consisted of:

Base premium	$1,200
GST on policy	$120
Stamp duty on policy	$10
Total cost of policy	$1,330

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is no excess on this policy.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater to repair the vehicle and pays $5,500 for the repairs.

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 inclusive of GST.	$1,320	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$120	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($10).	Nil	Not applicable	Stamp duty on insurance policies is not included on the activity statement.
Payment to repairer.	$5,500	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$500	1B	GST on purchase.

Reinstatement - GST-free supply (goods)

The insured runs a seafood cafe and purchased contents insurance from a general insurer for $2,062. The policy premium consisted of:

Base premium	$1,850
GST on policy	$185
Stamp duty on policy	$27
Total cost of policy	$2,062

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is no excess on this policy.

The insured's cafe was broken into and some of the seafood stolen. The insurer assesses the loss of the seafood as being $1,540 (GST-free). The insurer contracts with a seafood wholesaler to replace the seafood stock and pays the supplier $1,540.

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 inclusive of GST.	$2,035	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$185	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($27).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to supplier for GST-free goods ($1,540).	$1,540	G11	The acquisition is a non-capital purchase. For reporting purposes, GST-free purchases are included at label G11. As there is no GST associated with this purchase, it will not form part of the label 1B amount. A decreasing adjustment does not apply to this transaction.

Reinstatement - GST-free supply (services)

The insured purchased personal accident insurance from a workers' compensation insurer for $734. The policy premium consisted of:

Base premium	$660
GST on policy	$66
Stamp duty on policy	$8
Total cost of policy	$734

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is no excess on this policy.

An employee of the insured has an accident at work and receives treatment at the local hospital. The insurer contracts with a rehabilitation hospital to supply GST-free rehabilitation services to the employee. Whilst the supply to the injured worker is a supply of a GST-free health service, the supply to the insurer under contract is not. It is a taxable supply. The insurer pays the hospital costs of $3,850 and will be entitled to an input tax credit of $350.

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 inclusive of GST.	$726	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$66	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($8).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to hospital for a GST-free supply (subsection 38-60(1).	$3,850	G11	The acquisition is a non-capital purchase. For reporting purposes, GST-free purchases are included at label G11. As there is no GST associated with this purchase, it will not form part of the label 1B amount. A decreasing adjustment does not apply to this transaction.

Where the hospital makes a supply of GST-free rehabilitation services to the employee of the insured (the underlying supply), a supply of the service of making the underlying supply by the hospital to the insurer, in the course of settling insurance claims under the insurance policy of which the insurer is an insurer, is GST-free under subsection 38-60(1) to the extent the underlying supply is GST-free.

However, the supply is not GST-free if the hospital and the insurer have agreed that the supply not be treated as a GST-free supply (subsection 38-60(4)).

Insured entitled to full input tax credit - excess paid directly to insurer

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is an $800 excess on this policy that must be paid to the insurer.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater to repair the vehicle and pays $5,500 for the repairs. Under the terms of the policy, the insured pays the $800 excess directly to the insurer.

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 inclusive of GST.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	1A	GST in respect of the sale 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.
Payment to repairer.	$5,500	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$500	1B	GST on purchase.
Excess payment from insured ($800).	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the activity statement.
Increasing Adjustment attributable to Excess payment.	$72.73 (see calculation below)	1A	Amount of increasing adjustment.

Increasing adjustment (IA) calculation - full entitlement to input tax credits

The section 78-18 increasing adjustment is calculated as follows:

IA =1/11th of the amount that represents the extent to which the payment of excess relates to creditable acquisitions and creditable importations made by the insurer directly for the purposes of settling the claim.

1/11th × 100% × $800 = $72.73.

Amount to be shown at 1A on the activity statement is $72.73.

Insured entitled to full input tax credit - excess paid to supplier

The insured purchased a motor vehicle policy from a motor vehicle insurer for $697. The policy premium consisted of:

Base premium	$620
GST on policy	$62
Stamp duty on policy	$15
Total cost of policy	$697

The insured is registered for GST and has notified the insurer of their entitlement to a full input tax credit on the policy premium. There is a $220 excess on this policy.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $3,300 (GST-inclusive). The insurer contracts with the repairer and pays $3,080 for the repairs. The insured pays the $220 excess directly to the repairer, and will have a $20 input tax credit on the payment.

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 inclusive of GST.	$682	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$62	1A	GST in respect of the sale 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.
Payment to repairer.	$3,080	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$280	1B	GST on purchase.

Insured entitled to partial input tax credit - no excess

Reinstatement - taxable supply

The insured purchased building and contents insurance from a general insurer at a cost of $167,625. The policy premium consisted of:

Base premium (including fire service levy)	$150,000
GST on policy	$15,000
Stamp duty on policy	$2,625
Total cost of policy	$167,625

The insured is registered for GST and has notified the insurer of their entitlement to a 70% input tax credit on the policy premium. There is no excess on this policy.

The insured makes a claim against the policy and the insurer assesses the damages as being $8,800 (GST-inclusive). The insurer contracts with a builder to carry out the repair work and pays $8,800 directly to the builder.

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 (including fire service levy) inclusive of GST.	$165,000	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$15,000	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($2,625).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to builder.	$8,800	G11	Acquisition is a non-capital purchase.
ITC for builder payment.	$800	1B	GST on purchase.

Reinstatement - GST-free supply

The insured purchased building and contents insurance from a general insurer at a cost of $167,625. The policy premium consisted of:

Base premium (including fire service levy)	$150,000
GST on policy	$15,000
Stamp duty on policy	$2,625
Total cost of policy	$167,625

The insured is registered for GST and has notified the insurer of their entitlement to a 70% input tax credit on the policy premium. There is no excess on this policy.

The insured loses some GST-free items stored in the building. They make a claim against the policy and the insurer assesses the GST-free loss as $8,790. The insured arranges with a wholesaler to be re-supplied and the insurer pays the wholesaler direct. There is no contractual arrangement between the insurer and the wholesaler.

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 (including fire service levy) inclusive of GST.	$165,000	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$15,000	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($2,625).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to wholesaler.	$8,790	G11	Acquisition is a non-capital purchase subject to a decreasing adjustment.
Decreasing adjustment applicable to wholesaler payment ($8,790).	$256 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - partial entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (1 − extent of input tax credit)

The settlement amount is calculated as follows:

• Step 1: The sum of the payments of money made in settlement of the claim
• plus
• Step 2: The GST-inclusive market value of the supplies (if any) made by the insurer in settlement of the claim (other than supplies that would have been taxable supplies but for section 78-25)
• minus
• Step 3: The sum of any payments of excess made to the insurer under the insurance policy in question (except to the extent that they are payments of excess to which section 78-18 applies)
• multiplied by

Step 4

11/(11-extent of ITC)

 

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$8,790	+	0	−	0	×	11/(11-0.7)
=	$8,790	+	0	−	0	×	11/10.3
=	$9,387
DA =	1/11	×	$9,387	×	(1 - 0.7)
=	1/11	×	$9,387	×	0.3
=	$256

Amount to be shown at 1B on the activity statement is $256.

Insured entitled to partial input tax credit - excess paid to insurer

The insured purchased stock insurance from a general insurer at a cost of $5,525. The policy premium consisted of:

Base premium (including fire service levy)	$5,000
GST on policy	$500
Stamp duty on policy	$25
Total cost of policy	$5,525

The insured is registered for GST and has notified the insurer of their entitlement to a 90% input tax credit on the policy premium. The excess on this policy is $1,200 and is paid directly to the insurer.

The insured makes a claim against the policy and the insurer assesses the loss as being $13,409 (GST-inclusive). The insurer contracts with a wholesaler to replenish the stock and pays $13,409 to the wholesaler.

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 inclusive of GST and fire service levy.	$5,500	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$500	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($25).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to wholesaler.	$13,409	G11	Acquisition is a non-capital purchase.
ITC for wholesaler payment.	$1,219	1B	GST on purchase.
Excess payment from insured ($1,200).	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the activity statement.
Increasing Adjustment attributable to Excess payment.	$109.09 (see calculation below)	1A	Amount of increasing adjustment.

Increasing adjustment (IA) calculation - full entitlement to input tax credits

The section 78-18 increasing adjustment is calculated as follows:

IA =1/11th of the amount that represents the extent to which the payment of excess relates to creditable acquisitions and creditable importations made by the insurer directly for the purposes of settling the claim.

1/11th × 100% × $1,200 = $109.09.

Amount to be shown at 1A on the activity statement is $109.09.

Insured entitled to partial input tax credit - excess paid to third party

Reinstatement - taxable supply

The insured purchased domestic travel insurance from a general insurer at a cost of $1,054. The policy premium consisted of:

Base premium	$950
GST on policy	$95
Stamp duty on policy	$9
Total cost of policy	$1,054

The insured is registered for GST and has notified the insurer of their entitlement to an 85% input tax credit on the policy premium. The excess on this policy is $165 and is paid directly to a third party.

The insured makes a claim under the policy and the insurer assesses the loss as being $913 (GST-inclusive). The insurer contracts with a retailer to replace the damaged item and pays $748 directly to the retailer. The insured pays the balance (excess) of $165 directly to the retailer.

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 inclusive of GST.	$1,045	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$95	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($9).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to retailer.	$748	G11	Acquisition is a non-capital purchase.
ITC for retailer payment.	$68	1B	GST on purchase.

Reinstatement - GST-free supply

The insured runs a seafood cafe and purchased contents insurance from a general insurer for $2062. The policy premium consisted of:

Base premium	$1,850
GST on policy	$185
Stamp duty on policy	$27
Total cost of policy	$2,062

The insured is registered for GST and has notified the insurer of their entitlement to a 60% input tax credit on the policy premium. There is a $100 excess on this policy payable directly to the insurer.

The insured's cafe was broken into and some of the seafood stolen. The insurer assesses the loss of the seafood as being $2,388 (GST-free). The insured contracts with a seafood supplier to replace the seafood stock, and the insurer pays the supplier $2,388. There is no contractual relationship between the insurer and the supplier.

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 inclusive of GST.	$2,035	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$185	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($27).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to supplier at direction of insured ($2,288).	Nil	Not applicable	Not an acquisition. Decreasing adjustment will apply to this payment.
Decreasing adjustment applicable to payment ($2,288).	$88 (see calculation below)	1B	Amount of decreasing adjustment.
Excess payment from insured ($100).	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the activity statement.

Decreasing adjustment (DA) calculation - partial entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (1 − extent of input tax credit)

The settlement amount is calculated as follows:

• Step 1: The sum of the payments of money made in settlement of the claim
• plus
• Step 2: The GST-inclusive market value of the supplies (if any) made by the insurer in settlement of the claim (other than supplies that would have been taxable supplies but for section 78-25)
• minus
• Step 3: The sum of any payments of excess made to the insurer under the insurance policy in question (except to the extent that they are payments of excess to which section 78-18 applies)
• multiplied by

Step 4

11/(11-extent of ITC)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$2,388	+	0	−	$100	×	11/(11−0.6)
=	$2,388	+	0	−	$100	×	11/10.4
=	$2,420
DA =	1/11	×	$2,420	×	(1 - 0.6)
=	1/11	×	$2,420	×	0.4
=	$88

Amount to be shown at 1B on the activity statement is $88.

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

Insured not entitled to input tax credit - no excess

Reinstatement - taxable supply

The insured purchased a motor vehicle policy from a motor vehicle insurer for $1,330. The policy premium consisted of:

Base premium	$1,200
GST on policy	$120
Stamp duty on policy	$10
Total cost of policy	$1,330

The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on this policy.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $5,500 (GST-inclusive). The insurer contracts with the panel beater and pays $5,500 for the repairs.

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 inclusive of GST.	$1,320	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$120	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($10).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to repairer.	$5,500	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$500	1B	GST on purchase.

Reinstatement - GST-free supply

The insured operates a money exchange business and purchased contents insurance from a general insurer for $1,057. The policy premium consisted of:

Base premium	$950
GST on policy	$95
Stamp duty on policy	$12
Total cost of policy	$1,057

The insured is registered for GST and makes only input taxed supplies. The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is no excess on this policy.

The insured makes a claim under the policy and advises the insurer that the contents damaged were all GST-free goods. The insurer arranges for a supplier to replace the damaged GST-free contents and pays the $6,325 to the supplier directly. There is a contractual arrangement between the insurer and the supplier.

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 inclusive of GST.	$1,045	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$95	1A	GST in respect of the sale made in the course of the insurance business.
Stamp duty on policy ($12).	Nil	Not applicable	Stamp duty on insurance is not included on the activity statement.
Payment to supplier for GST-free supplies ($6,325).	$6,325	G11	The acquisition is a non-capital purchase. For reporting purposes, GST-free purchases are included at label G11. As there is no GST associated with this purchase, it will not form part of the label 1B amount. A decreasing adjustment will apply to this transaction.
Decreasing adjustment applicable to supplier payment.	$575 (see calculation below)	1B	Amount of decreasing adjustment.

Decreasing adjustment (DA) calculation - no entitlement to input tax credits

The section 78-15 decreasing adjustment is calculated as follows:

DA = 1/11th × Settlement amount × (1 − extent of input tax credit)

The settlement amount is calculated as follows:

• Step 1 The sum of the payments of money made in settlement of the claim
• plus
• Step 2 The GST-inclusive market value of the supplies (if any) made by the insurer in settlement of the claim (other than supplies that would have been taxable supplies but for section 78-25)
• minus
• Step 3 The sum of any payments of excess made to the insurer under the insurance policy in question (except to the extent that they are payments of excess to which section 78-18 applies)
• multiplied by

Step 4

11/(11-extent of ITC)

 Table: Example of calculating the settlement amount

	Step 1		Step 2		Step 3		Step 4
Settlement amount =	$6,325	+	0	−	0	x	11/(11−0)
=	$6,325	+	0	−	0	x	11/11
=	$6,325
DA =	1/11	×	$6,325	×	(1 − 0)
=	1/11	×	$6,325	×	1
=	$575

Amount to be shown at 1B on the activity statement is $575.

Insured not entitled to input tax credit - excess paid to insurer

The insured purchased a motor vehicle policy from a motor vehicle insurer for $2,435. The policy premium consisted of:

Base premium	$2,200
GST on policy	$220
Stamp duty on policy	$15
Total cost of policy	$2,435

The insured has notified the insurer that they do not have any entitlement to input tax credits on the policy premium. There is an $800 excess on this policy which must be paid to the insurer.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $6,270 (GST-inclusive). The insurer contracts with the panel beater and pays $6,270 for the repairs. Under the terms of the policy, the insured pays the $800 excess directly to the insurer.

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 inclusive of GST.	$2,420	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$220	1A	GST in respect of the sale 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.
Payment to repairer.	$6,270	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$570	1B	GST on purchase.
Excess payment from insured ($800).	Nil	Not applicable	Payment is not for a supply, therefore it is not included on the activity statement.
Increasing Adjustment attributable to Excess payment.	$72.73 (see calculation below)	1A	Amount of increasing adjustment.

Increasing adjustment (IA) calculation - no entitlement to input tax credits

The section 78-18 increasing adjustment is calculated as follows:

IA =1/11th of the amount that represents the extent to which the payment of excess relates to creditable acquisitions and creditable importations made by the insurer directly for the purposes of settling the claim.

1/11th × 100% × $800 = $72.73.

Amount to be shown at 1A on the activity statement is $72.73.

Insured not entitled to input tax credit - excess paid to supplier

The insured purchased a motor vehicle policy from a motor vehicle insurer for $697. The policy premium consisted of:

Base premium	$620
GST on policy	$62
Stamp duty on policy	$15
Total cost of policy	$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 $220 excess on this policy.

The motor vehicle is damaged in an accident and taken to a panel beater for repairs. The insurer is advised that the cost to repair the vehicle is $3,520 (GST-inclusive). The insurer contracts with the panel beater and pays $3,300 for the repairs. The insured pays the $220 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 inclusive of GST.	$682	G1	Payment for a sale made in the course of the insurance business.
GST on policy.	$62	1A	GST in respect of the sale 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.
Payment to repairer.	$3,300	G11	Acquisition is a non-capital purchase.
ITC for repairer payment.	$300	1B	GST on purchase.

See also:

• 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 GST-free insurance policy and cash settlement to the insured
• Purchase of input taxed insurance policy and cash settlement to the insured
• Subrogation