Is There GST Paid on Car Insurance?

Goods and services tax (GST) is a sales tax collected by the governments of Australia and New Zealand. In New Zealand, the rate is set at 15 percent, while in Australia the rate is set at 10 percent. GST is added to the cost of all goods and services, and is paid by the consumer to the supplier of those goods and services. Suppliers are responsible for paying the GST that they collect to the government department responsible for collecting tax in each country.

GST and Car Insurance

In both Australia and New Zealand, GST is added to the cost of car insurance. Insurance is not exempt from the tax in either country, and insurance companies must collect the tax and pay it to the respective government tax agency. In Australia, the Australian Taxation Office is responsible for collecting GST, and in New Zealand, the Inland Revenue Department collects the tax. In both countries, GST is included in the total car insurance sale price, and the money paid by consumers to insurance companies includes a GST component. The tax is not collected separately.

GST Registration

Australian and New Zealand businesses, including sole trader businesses such as self-employed tradespeople, can apply to become GST-registered businesses. When a business becomes GST registered, it can claim a credit for the GST that it pays for goods and services used in the running of the business. For example, if an Australian business buys a car to use exclusively for business purposes. and an insurance company charges $110, including GST, to insure the car, $10 of the insurance cost represents the GST component. The business claims the $10 back as a credit from the amount of GST it has collected and needs to pay to the government with its next GST return. The same system of credit applies to GST-registered businesses in New Zealand, although the GST rate in New Zealand is set at 15 percent.

Australian GST Credit Process

In Australia, an insurance company does not pay the GST component of the cost of any repairs made to a car following an accident, if the car owner is a business that is GST registered. The insured business claims the GST back from the taxation department as a credit when filing the next GST return. For example, if a car is involved in an accident, and the cost of repairs, including GST, comes to $1,100, the insurance company only pays $1,000 of the cost of the repair, and the GST-registered car owner claims back the $100 GST component as a credit when filing the next GST return.

GST-Exempt Items

Although GST is added to the cost of most goods and services supplied in Australia and New Zealand, some items do not have a GST component added to their sale price. In New Zealand, charities do not have to add GST to the cost of donated goods that they sell on to the public. Rent on residential property does not include GST, nor does the provision of some financial services, such as mortgage and mortgage interest repayments. In Australia, basic food items are GST-free, as are sales of precious metals and sales of water, sewerage and drainage services.