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In accordance with the “A New Tax System (Goods and Services Tax) Act 1999” (GST Act), most insurance is deemed a taxable supply (ie, it is not GST-free). There are, however, particular classes of insurance that do not attract GST including: Some Travel and Marine Insurances, and Life Insurance.
The ability for an Insured to claim any GST back from the Australian Taxation Office (ATO) as an Input Tax Credit (ITC) depends on the purpose for which the insurance is acquire and on the basis that the Insured’s business is a registered entity, ie:
- The Insured must declare their % of ITC at the time of a claim.
- Where the Insured is registered for GST, generally the insurer on settlement of a claim will not pay the insured the GST portion of the settlement.
- The Insured can then claim the GST portion back from the ATO through their tax return.
- Where there is only part business use, the Insured will only be entitled to claim a part of the GST paid as an Input Tax Credit.
- Unregistered entities and individuals not in business will not be entitled to Input Tax
Credits and the tax portion of a claim settlement will be paid out by the Insurer at time of settlement and they will be paid the GST portion at time of claim settlement.
On with a property claim, say damage to a building, the Insured pays the builder say, $11,000 and claim $10,000 from the insurer. The Insured is paid $10,000 which is treated as insurance proceeds and no GST is payable. They however, treat the $1,000 GST that they paid to the builder as an Input Tax Credit and recover this amount in their respective BAS statement.
This information serves as a guide only. Readers should seek further and more detailed explanations from their BAS agent or Tax Advisor.
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