The Inland Revenue Authority of Singapore (IRAS) has published an updated e-Tax Guide - GST Guide on Insurance: Cash Payments and Input Tax on Motor Car Expenses (Third Edition).

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1 Aim

1.1 This e-Tax Guide explains the GST treatment for Cash Payments and input tax incurred on motor car expenses by GST-registered general insurance companies.

2 At a glance

2.1 Under an insurance contract, an insurance company may choose or be required to make cash payment to the claimant when an insured event happens (referred to as " Cash Payment" in this e-Tax Guide).

2.2 There are generally two circumstances where Cash Payment is made under the insurance policy. One, where the insured incurs a loss and makes a cash claim from the insurance company (also known as cash indemnity payment) and two, where an insured event happens and the insured is entitled to receive an agreed sum from the insurance company. The GST-registered insurance company can claim deemed input tax on Cash Payments made under insurance policies that are subject to GST and issued to prescribed policyholders.

2.3 For a motor car insurance contract, an insurance company may choose to repair, reinstate or replace an insured motor car instead of making a Cash Payment. In order to repair, reinstate or replace the motor car, the insurance company would have to contract with third party suppliers to perform the services or supply the goods and thus, incur input tax if the supplier is GST-registered. The GST-registered insurance company can claim input tax incurred in respect of motor cars that are insured under the insurance policies.