Blog question on GST
I have 2 questions.
A ISR client has queried whether GST should be included in Gross Rentals – GST is not mentioned anywhere in the ISR policy – and the underwriter involved could not give me an answer!
Peter [email and surname provided]
The answer is this one is you do NOT include the GST. Under Section 17 of the Goods and Services (a new tax system) Act, insurance payments are exempt from GST. This means that should your client’s premises become unable to be tenanted, and they make an insurance claim, the money received from the insurer should not be treated as rental income but insurance proceeds. The money here is subject to normal income tax rules though.
The same goes with the building. If the Insurer were to reimburse a client for any damage covered by insurance it would be paid net of GST. The Insured claims the GST on their BAS as an input Tax Credit and the insurance monies are again treated for accounting/tax purposes as insurance proceeds. For income tax purposes the revenue is off set by the expense and so is tax neutral.
Please take special note that this applies to standard ISR Policies and good quality business pack policies. There are some policies in the Australian Market where the Insured is required to insure for GST. I feel this is a breach of the principle of utmost good faith as the insurer is asking for the insured to insure something that they will never pay out on.
PolicyComparison.com is a quick way to check if the policy requires the Insured to include GST or not but you are safe with a GST unless it has a special endorsement. I have never seen one.
For home and contents insurance or where the client is not registered for GST you need to include the GST as there is no right for the Insured to a input tax credit. There is for an insurer where they pay the builder or supplier direct.
The tax laws around GST are complex and you need to keep in mind what is GST exempt and what is not.
[While I have also answered via email Peter’s second question I will reproduce the second question and my answer in tomorrow blog post]
I hope this adequately explains your questions Peter.