In the previous instalment of Cover Note, we saw a brief profile of a constructive total loss claim for a sport utility vehicle (SUV).
The SUV was submerged and needed repairs costlier than its insurance value and so, the insurer opted to settle the claim at the Insured Declared Value (IDV). Traditionally, the insurer would pay the IDV to the insured, take over the salvage, and dispose it of in one of their periodic auctions.
Nowadays, some insurers pick the best quote from qualified salvage buyers and make a composite claim offer to the insured by making up the difference to total to the IDV. Apparently, the practice is in order to avoid taking over the title of the vehicle because that purchase and subsequent sale gets on to the books of the company.
In this matter, the insured was faced with a new problem. He was a GST-registered consultant and was liable for GST on the profit on sale of the vehicle to the salvage buyer.
Being a used vehicle, its written down value was zero, hence GST would have to be paid on the full sale value, cutting into the insurance claim value he received. In contrast, any insurance claim is free of income tax as it is compensation and not income. So, he felt that GST should not impact him either.
‘No precedent’
When he brought this to the knowledge of the insurance company, they expressed helplessness as the purchase and sale of the vehicle would both be ‘GST-able’ transactions and they did not have a precedent or methodology for this.
Meanwhile, the procedure for transferring the vehicle presented a different challenge.
When we sell a vehicle, we sign the Road Transport Authority forms for transfer, forms 29 and 30, and the buyer has 30 days to transfer the title to himself.
In practice, buyers request that the forms not be dated and that even buyer details not be filled in Form 30, the transfer form.
They claim that this enables them to get more lead time to get the registration done. However, it also enables them to use the vehicle in the seller’s name and, eventually, sell it to somebody else.
I have known cases where this continues for years! Their reasoning is that registration charges are avoided and the fewer the owners on the RC the better the vehicle’s resale value. However, this comes at the cost of the seller.
How so? We will see this in the next instalment of Cover Note.
(The writer is a business journalist specialising in insurance & corporate history)
