I am looking for an expert opinion on the correct treatment of GST in commercial marine claims settlements using the following as an example.
The insurer is Australian based and its transactions in New Zealand are GST exempt. Claim accepted for a lost courier bag, $4,000 (incl. GST) cost of replacement, carrier compensation = $2,000 (incl. GST).
Should the settlement be calculated as $4,000 less $2,000 = $2,000 less GST = $1,739.13 less excess?
Or, should it be $3,478.26 (Gst excl.) less $2,000 (incl. GST) = $1,478.26 less excess?
The compensation being paid is in settlement of a claim for damages. The payment of damages is neither goods nor a service, hence GST simply does not apply (and therefore is often expressed as "GST inclusive, if any"). Hence GST should not be either added to or deducted from the settlement figure and neither party needs to include it in a GST return. The amount payable becomes a flat $2000, from which the excess should be deducted, as between insured and carrier. The carrier will still be liable to pay the full $2000 to its customer.
For completeness, the $4000 starting figure is also essentially irrelevant because under the carriage of goods legislation, what matters is the number of units of goods (one) for which $2000 is payable provided the value exceeds $2000 - the extent to which it exceeds $2000 is immaterial.