GST Guide on Insurance: Cash payments and input tax on motor car expenses
Who should read the updated GST guide?
This update is relevant to insurance companies as it talks about the new record-keeping requirements. With effect from 1 October 2021, these companies will have to get a written declaration from their GST-registered customers on whether the GST charged on the insurance policy is a disallowed expense under Regulations 26 & 27 of the GST (General) Regulations.
The reason why such a declaration is required is because one of the conditions for deemed input tax on cash payment is that the policyholder is not registered for GST or if the policyholder is a GST-registered person, the GST on the policy is a disallowed expense under Regulation 26 & 27.
What other important things should I take note of?
Other than the need to provide a written declaration when you next purchase insurance for your business, you should be aware that the common expenses that are disallowed under Regulations 26 and 27 are group hospitalization and accident insurance, health and medical insurance and insurance for motor car. This will enable you to tick off the right box in the declaration form.
Please also be reminded that GST incurred on insurance where the insurance or payment of compensation is mandatory under the Work Injury Compensation Act.
You should find out more about the insurance coverage under the work injury compensation act (WICA) is not a disallowed expense.
But that is not to say that GST incurred on insurance under the WICA is definitely claimable. If your company is very generous on the staff benefits and decides to take up insurance under the WICA that covers more than what the WICA requires, the GST incurred on the additional premium would not be claimable.
For example, under the WICA, the company is required to pay the medical expenses for work-related injuries up to a cap of $45,000. However, if it opts to cover the employee up to S$100,000 for an additional premium of $300, the GST incurred on the additional premium would not
You may ask, how do I know whether the Company takes up additional coverage that is more than what is required of WICA? Well, who says GST is simple in the first place?