How does GST inpact on insurance settlements?
There is no goods and services tax (GST) payable on insurance settlements as long as the entity that paid the premium informs the insurer of its entitlement to an input tax credit on the premium at (or before) the time a claim is made. When an insurer pays out a cash settlement on a claim, it is common practice for them to reduce the settlement amount by 1/11th if the insured is entitled to a full input tax credit. The rationale for doing this would appear to be that the insurer considers they are only required to indemnify the insured for the actual loss incurred. If the insured is entitled to claim a full input tax credit on the replacement item, the insurer may consider that the entity’s loss is less than it would have been if they could not claim an input tax credit. If, on the other hand, the insurer contracts with a supplier to provide a service to the insured, and undertakes to pay the settlement monies direct to the service provider in full settlement of the account, the insure
