Special arrangements
Compulsory third party insurance
Compulsory third party insurance is mandatory motor vehicle injury cover. Premiums generally include GST, and the schemes are run under state and territory laws that vary between jurisdictions.
Compulsory third party insurance, often called CTP, is a form of motor vehicle insurance that vehicle owners must hold to cover injury to other people if they are at fault in an accident. It is required by law and is set up under state and territory legislation, so the way it works, who sells it and how it is priced vary by jurisdiction. It is not administered by the ATO, although the GST rules apply to it.
In many jurisdictions the premium for a CTP policy includes GST, so the person who pays it is paying 10% on the taxable part of the premium. Some CTP charges, such as levies or fees collected for the government, may be treated differently, and the premium notice or invoice usually shows how the amount is made up. It is important to read the document, because the GST amount shown is the figure that matters for any credit.
For a business, the key question is whether the vehicle is used for the business and whether the GST in the premium can be claimed. A registered business that holds a tax invoice and uses the vehicle for its taxable activities can generally claim the GST in the premium as a credit. If the vehicle is used partly for private purposes, the credit is reduced to reflect the business use. A vehicle used wholly for private purposes gives no credit at all.
Many people forget that a vehicle's registration and CTP are often paid together as one bill. The registration fee, stamp duty and other charges are state items, and some of them carry no GST. If a business simply claims one-eleventh of the whole bill, it may claim too much. The correct approach is to claim only the GST that has actually been charged, as shown on the invoice or statement.
On the claims side, when an insurer pays compensation to an injured person, the payment is not generally a taxable supply by the injured person, and the person does not charge GST on it. The insurer may be entitled to a credit in respect of the payment, depending on the circumstances, and the rules work to prevent GST from being a cost to the scheme where there would otherwise be no supply. These insurer arrangements are not normally a concern for the vehicle owner.
Because CTP schemes differ from state to state, and some places have changed their systems over time, it is best to check the rules for your own jurisdiction through the relevant state authority or insurer. It is also worth confirming with a tax professional how to handle fleet vehicles, where multiple policies and different use patterns make apportionment more important.
This page is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A registered plumber receives a combined registration and CTP notice for a work van. The notice shows a CTP premium of $660 including GST of $60, and other fees with no GST. The van is used 100% for business, so the plumber claims the $60 shown as GST on the BAS. If the van were used 70% for business, the credit would be $60 multiplied by 70%, which is $42.
Practical tips
- Claim only the GST actually shown on the CTP invoice or notice, not one-eleventh of the entire registration bill.
- Reduce the credit if the vehicle has private use.
- Check your state or territory authority for how CTP works locally, since the schemes differ.