- The New Zealand High Court in Mainzeal confirmed that GST can apply to settlement/compensation payments made under a contract of insurance, even where the recipient is not the insured party entitled to claim under the policy.
- Section 5(13) of the Goods and Services Tax Act 1985 was held to apply to the actual recipient of insurance proceeds; in Mainzeal, the GST-registered recipient had to account for GST on about NZ$20 million received from D&O insurance.
- The court’s reasoning means a GST-registered claimant receiving insurance-linked compensation for a loss in its taxable activity may net less than expected because GST is carved out of the payment.
- GST outcomes in settlements depend on factors such as whether the payment is under insurance, the recipient’s GST registration status, the nature of the loss, and the surrounding legal/commercial arrangements.
Source: dentons.co.nz
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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