How to claim GST on your insurance policy

How to claim GST on your insurance policy

Most business owners and individuals have an understanding about GST (Goods and Service Tax), we know that it is a 10% tax that is on most goods, services and items sold or consumed within Australia and if you are registered for a GST claim, that you must report your GST on your sales as well as purchases, to the ATO and pay/receive the difference.

When preparing a business activity statement, most people assume that all expenses will include 10% GST in the total amount, however this is not accurate as different expense, will have different calculation and different components which will/will not have GST.

Below, we shall look in detail of the GST implications on different types of insurance.

• Health Insurance: This will be considered private in nature and therefore GST free
• Life insurance: This is considered as input taxed which means that the supplier cannot charge GST nor can the receiver claim GST.
• Insurance for both business/private: Insurance which may also be partly for private use, will need to be apportioned correctly so only the part where the insurance relates to the business, will be claimed.
• Compulsory motor vehicle third party insurance: If you have started the cover before 1 July 2003, you cannot claim a GST credit on this insurance. However If you started the cover after 1 July 2003, you will be able to claim a GST credit on the premium component, which is the total insurance expenditure minus stamp duty.
• Payment on excess: If you had paid your insurer, any excess in the insurance, you will not be able to claim a GST credit however, if you had paid another party who is not acting as an agent for your insurer and you have received a tax invoice, then you can claim a GST credit.
• Insurance premiums: If the insurance is for business purpose only, you can claim the GST component on the premium of the insurance, which is the total insurance expenditure minus stamp duty.
• Insurance settlement: Different to the above, this will be a GST payable and not a credit. Insurance settlement will be included in your sales and you will have to pay the GST component of that settlement except if the following applies.
  • If you received a settlement amount under a compulsory third – party insurance scheme.
  • Money/Goods received to settle your claim under the insurance policy – Only if you have told your insurer how much GST you can claim on the policy premium either before or while you were making the claim.
  • Settlement of your claim against another party: Only if you are not the insured party but the insurer has paid a settlement amount directly to you. Or if the insured party received the settlement amount from the insurer then directly transfers to you.

Although it is a business expense, insurance is one example of an expenditure which does not include a 10% GST on the total amount and hence why care must be taken when preparing a business activity statement. If an individual assumes that all expenses includes GST or if a 10% GST applies for the total expenses for all expenses, then the ATO may audit the file and you may have to amend the activity statement and pay the difference back along with potential penalties. In order to make sure that you are always lodging correctly, give us at A One Accountants a call today on 03 8609 1889 or email us on info@a1accountants.com.au and we’ll take care of your activity statements, company tax returns, financials and any correspondence that may be required with the ATO.