On 3 April 2017, the IRAS reissued the Second Edition of its e-Tax Guide on GST Guide on Insurance: Cash Payments and Input Tax on Motor Car Expenses.
One of the changes relates to the clarification of the GST treatment for input tax on medical expenses incurred by insurance companies.
If the claimant incurs the expenses (e.g. medical expenses incurred during a hospital stay) and the hospital forwards the claim directly to the insurance company, the question is whether this would be treated as a supply made by the hospital to the insurance company.
A distinction should be made between motor car policies and medical/health policies. Unlike motor car insurance policy where the insurance company may have to contract for services from an authorised motor workshop to reinstate the motor car to its original condition as required under the insurance contract, the insurance company does not have any obligation to contract for or provide any medical services to the insured under medical/health policies. Hence, any payment made by the insurance company to the hospital should be regarded as a payment arrangement and not as consideration for a supply of services to the insurance company. The insurance company should not claim input tax based on tax invoices received from the hospital. Instead, the insurance company should claim deemed input tax on the Cash Payment provided certain qualifying conditions as stipulated on the e-Tax Guide are satisfied.
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Input tax incurred on termination expenses cannot be attributed to past supplies. However, as the termination of a business is regarded as made in the course or furtherance of that business under the GST Act, expenses incurred for winding up would be regarded as residual input tax subject to apportionment.
Where the business has ceased to make any taxable supplies and thus could not claim any input tax by means of the standard input tax apportionment formula, input tax incurred on termination expenses would be allowed in full by way of administrative concession.
Expenses incurred in periods where the business had ceased and not for the purpose of winding up the business (‘non termination expenses’) are not incurred in the course or furtherance of a business and hence will strictly not be allowed. However, if the taxable person can establish a link between the non termination expense and taxable supplies that were made in the past, he may claim these non-termination expenses, as residual input tax in full. Such expenses include audit fees incurred to audit the periods in which the business was still making taxable supplies. Rental and utilities incurred in periods where the business had ceased will remain disallowed since no link between these expenses and past taxable supplies can be established.
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