A New Tax System (Goods and Services Tax) Act 1999 introduced GST in Australia on 1 July 2000. It has had a significant impact on property claims. Consider the following case study.
A severe fire razes a building owned and occupied by Stretch Plastics Pty Ltd (the Policyholder). Stretch operates an overdraft at its limit prior to the fire. It is registered for GST, receives a 100% Income Tax Credit for all GST paid and submits quarterly Business Activity Statements (BAS).
Loss adjusters, insurers, claim consultants, project managers and builders swing into action.
A scope of works is agreed, tenders received and the contract awarded for a reinstatement value of $1,000,000 plus $100,000 GST making a total of $1,100,000.
Consultants advise the Insurer will reimburse the building cost of $1,000,000 ex GST once invoices are submitted. They explain Stretch (the Policyholder) must pay the GST component of $100,000 as invoices fall due. Don’t worry, they say, as this will be refunded by the Tax Office when Stretch submits their next BAS. The next BAS is not due to be lodged for 3 months.
Sales from the business have ceased, the bank will not extend the overdraft, Stretch has no spare funds. It cannot guarantee payment of the GST component of the builder’s invoices when they fall due.
The builder will not start work and the Business Interruption loss is continuing.
What does the Policyholder do? Manage the claim carefully, encourage healthy progress payments from the Insurer, submit BAS monthly, discuss the matter with the insurer and the tax office. Stay calm!
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia.
Policy Description: - Various.
Insurer: - Various.
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