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HST on insurance claim of stolen tools

Quick question, my client is an HST registrant and independent contractor, unincorporated- typical T2125 return. He recently had a utility trailer full of tools stolen, and his business insurance is telling him that they will replace the cost of all the tools and trailer, but NOT the HST on them, as my client is an HST registrant and needs to claim the HST on the tool/trailer replacement as an ITC credit.

Is this normal? I was under the impression that making an insurance claim for reimbursement has nothing to do with ITC credits, and that the insurance company should be reimbursing the client for the entire cost of the replacements with HST, regardless if they are an HST registrant or not. Just seems a bit fishy…I can’t wrap my head around the logic as to why the insurance company should get a break and not pay the HST portion to the client…

Likely because there is no cost to the client.

He would be making money on the transaction in theory if they paid it to him and he was able to then claim ITC’s.

Claiming it would be double claiming, and against the law. Is this a standard policy because insurance companies suspect most people would attempt to double claim/defraud the CRA? IF so, it is interesting that the insurance companies are so nice to police this for the CRA.

I will admit that I have not actually faced this situation and therefore do not have a definitive answer.

However, your client will certainly not be “making money” on the transaction because he will incur HST on the replacement costs of his new tools. I wonder also, does the insurance company get to claim ITC’s on the HST that would normally be included in their payout? Or is it all just one big expense to them?

Good luck with this.

Stephen

Arliss is right, it is standard policy. Insurance reimburses the the replacement items if purchased directly by the insured registrant and excludes the available ITC. If insurance were purchasing directly then they would be paying it, too.

@swelbourn
Example:

  1. I buy $1,000 worth of tools and pay 11% HST (I don’t know HST amounts…here we have GST & PST); total $1,110
  2. I claim the HST ITCs on my normal HST return and get a refund of $110 (or it offsets the HST I remit)
  3. My tools get stolen
  4. Insurance pays me $1,000 (or replacement cost of the tools)
  5. I buy $1,000 worth of tools again and pay 11% HST; total = $1,110
  6. I claim the HST ITCs on my normal HST return and get a refund of $110 (again). At this point I am in the same position as step 2 - no better, no worse.

If the insurance paid me $1,110 and I also claimed the ITCs at step 6, I would have got $110 more than I paid in the first place.

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A few years back we had a vehicle involved in an accident and was totalled the vehicle was insured for replacement cost so they paid the vehicle and since the company was HST registered they also paid the HST on the vehicle.
Francois

There is a memorandum on the subject
GST/HST Treatment of Insurance Claims - Canada.ca

You will find the answer regarding your situation

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If the insurance paid the $110 hst, wouldn’t it have to be reported as HST collected?

@fpitre1
Correct (as mentioned by @LMK above) - the insurance company paid for the vehicle directly. Then the insurance company will claim the ITCs. But, if the claimant received cash, then the claimant can do what they want with it - if they buy a new vehicle and pay GST/HST, they will get the ITCs.

@benoit.associes1
I believe insurance proceeds are not HST taxable, so no - if the insurance company paid $1,110 none of it would be considered HST “collected”.

Typically, when you report GST/HST, it’s based on your company sales - YOU issue the invoices, and YOU must calculate and charge the GST/HST to your customer. Your invoice must show the amount of GST/HST, and must include your GST/HST number. None of that happens when you get insurance proceeds.