Special arrangements
Insurance
For GST, general insurance premiums generally include GST, while some other types, such as life insurance and private health insurance, are treated differently. Claim payments have their own rules.
Insurance is a payment made to transfer a risk, and GST applies in different ways to different types. Premiums for general insurance, which covers things such as business property, vehicles, public liability and professional indemnity, generally include GST at 10%. A registered business that takes out insurance for its enterprise can generally claim a credit for the GST in the premium if it holds a tax invoice and the insurance relates to taxable activity.
Other types of insurance are treated differently. Life insurance is generally a financial supply and is input-taxed, which means there is no GST in the premium and no credit for the policyholder. Private health insurance is generally GST-free. The nature of the cover decides the treatment, not the name of the product, so it is worth checking the type of policy before assuming the premium carries GST.
The claim side can be more complicated. When an insurer settles a claim for a loss, the settlement is generally not itself a supply by the policyholder, and the policyholder does not usually charge GST on receiving it. The insurer may instead be entitled to a credit relating to the claim payment, if the policyholder would have been entitled to credits on the loss. Because of this, insurers often reduce a cash settlement by the amount of credit the policyholder could claim.
This has a practical effect for registered businesses. If an item is destroyed and the insurer pays a cash settlement, the business may have to account for the fact that it is no longer using the item, which can involve an adjustment of the credits previously claimed. If the insurer instead repairs or replaces the item directly, the arrangements are different, and the insurer deals with the supplier.
Another everyday issue is the difference between GST on the premium and stamp duty or levies. State and territory governments charge their own duties and levies on some insurance, and these are administered by state revenue offices and vary by jurisdiction. The GST in a premium may be calculated on an amount that includes or excludes those charges, so the invoice should be read carefully.
Businesses that sell insurance as intermediaries, such as brokers, have their own rules. A broker's commission is generally a taxable supply, and the treatment depends on the structure. The buyer of insurance should also remember that an insurance premium for private purposes, such as home contents, gives no credit at all.
Since there are many types and structures, this page is general information only. Check your situation with the ATO or a registered tax professional.
Worked example
A registered cafe pays $2,750 for general business insurance, including GST. The GST in the premium is $2,750 divided by 11, which is $250, and the cafe claims it as a credit on the BAS with a valid tax invoice. If the cafe also pays $1,800 for a life insurance policy on the owner, that premium is input-taxed, so no GST is charged and no credit is available.
Practical tips
- Check the type of policy before claiming credits, because life and health cover are treated differently from general insurance.
- Obtain a tax invoice for premiums so you can support your credit claim.
- If an insurer pays a cash settlement, ask how GST was treated and review any credits you previously claimed on the lost item.