Making the most of your insurance financially
Good news! When you own your own small business and you have some types of insurance in place for assets in that small business, you may be able to claim some GST credits. Let’s investigate.
So, what’s the deal?
Basically, if you own a small business and you are registered for GST, you may not have to pay GST on insurance premiums if the insurance has been purchased to cover an asset that is either used entirely or in part for business purposes.
What if I use the asset for private and business use?
If the asset for which you have purchased insurance is used for both private and business purposes, then you are only exempt from paying goods and services tax for the percentage of the premium that relates to business use.
For example, if you are insuring a car that is used 25 per cent of the time for personal tasks and 75 per cent of the time for business tasks, then you can only claim GST on 75 per cent of the insurance premium.
For what types of insurance am I not able to claim the GST component?
You cannot claim the GST on insurance if the insurance policy was purchased to cover any of the following:
Residential properties
Input-taxed/financial supplies — things like credit or loans
How do I claim the GST?
You have two options when it comes to claiming GST credits. One involves recouping the costs and one involves not paying them from the outset, so it will just depend on which option appeals to you more.
If you’d prefer to pay the GST and then recoup the costs, you just pay the GST on your insurance policy — as you normally would — and then you need to get in contact with the ATO to claim a refund.
If you’d rather not pay the GST to begin with, you should alert your insurer at the outset what percentage of the insurance is being purchased to cover a business asset. The insurer should then only charge you GST on the portion of the insurance that is being purchased for private purposes.
Where can I find more information?
If you would like further information on what sorts of things you can claim GST credits for, or if you would like some clarification on the claiming process, go ahead and visit the ATO’s website.
Source KnowYourRisk
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