What should you put at the Input Tax Credit question when making an insurance claim?

 

What Percentage of Input Tax Credits (ITCs) Are Strata Companies Entitled To?

As part of making a claim, the insurer will ask what percentage the insured is entitled to Input Tax Credits (ITCs).  In simple terms, they are asking if the claimant is entitled to claim GST on expenses.  If they are entitled to claim GST on expenses, the insurer will reduce their payout by the amount of GST to ensure that the strata company is out of pocket by only the excess amount – no more and no less .

The below table compares two strata companies each making a claim of $2750 on a policy with a $500 excess – one is registered for GST and the other is not:

The GST registered scheme receives a reduced payout from the insurer but is entitled to a GST credit from the Australian Taxation Office (ATO) on their next Business Activity Statement (BAS).  The non-registered scheme gets no credit from the ATO but receives a higher amount from the insurer.  As can clearly be seen though, each ends up being out of pocket for only the excess on the policy.

The question of percentage entitlement to ITCs is asked by the insurer because regular businesses often purchase assets (for example a motor vehicle) that is partially for business and partially for private use.  Any time a specific percentage (other than 0% or 100%) is declared, the insurer will only reduce by the business use proportion of the GST.

Such situations are extremely rare in strata.  As a result, strata companies should almost always enter 0% (if not registered for GST) or 100% (if registered for GST) in answer to the ITC question on a claim form - there is rarely, if ever, an in-between.  

 

For more information, please contact the Ascend office via your strata manager.

Links:

- ATO Fact Sheet: GST & Insurance Transactions

- ATO: Insurance Settlements

- GST Ruling 2006/10: Insurance & Entitlements to Input Tax Credits

 


The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above.  Please contact our office for more information.

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