Insurance settlements and GST

Are you?
– Registered for GST?

At a glance:
– Business owners must inform their insurer about their GST registration status as this may affect the treatment of insurance settlements they receive.

You should:
– Consider whether you are required to remit GST on insurance settlements received.
– Contact us if you require any clarification or advice.

Generally, taxpayers who are registered for GST are able to claim GST credits on the portion of insurance premiums that relate to their business.

GST may be required to be remitted from the agreed upon insurance settlement amount with the insurer.

Provided the insurer has been informed of the taxpayer’s entitlement to claim full input tax credits on the cost of their relevant insurance policy at or before the time they make a claim on the policy, no GST liabilities will arise.

Many insurers maintain a policy of reducing the insurance proceeds at settlement by 1/11, to account for GST.

For example:
Tom is registered for GST and holds insurance with XYZ insurance. Tom has informed XYZ he can claim a 100% GST credit for the GST included in the policy price.

Tom has a car accident and the cost of repair for his motor vehicle is $5,500 including GST. Tom pays repair costs of $5,500. XYZ pays Tom $5,000 in full settlement of his claim and Tom will be able to claim a GST credit of $500 for the GST paid on repairs when he lodges his Business Activity Statement.

Remember:
– You may be required to remit GST on insurance settlements you receive.