Insurers are required under legislation to make adjustments, known as ‘decreasing adjustments’ on claims settlements in circumstances where no input tax credit or only partial input tax credit has been claimed on the policy premium. Where full input tax credits are available on the premium, no decreasing adjustment applies. The decreasing adjustment method uses the taxable percentage of the insured to calculate the correct input tax entitlement. Legislation imposes a responsibility on the insured to provide insurers with the following information, which will allow them to accurately settle any claim:
- the GST status of the insured, ie. is the insured registered for GST or not?
- if the insured is registered, their ABN
- the percentage of input tax credits the insured is claiming, or is entitled to claim i.e. the insured’s taxable percentage.
Failure to accurately declare the extent to which an insured is taxable imposes a GST liability on the claim settlement. This liability is borne by the insured.