GST APP TAX REGULATIONS: WHAT YOU NEED TO KNOW

GST app tax regulations: What you need to know! Commencing April 1, 2024, platforms offering ride-sharing, food delivery, and short-term accommodation services – “listed services” as per the legislation – will be mandated by law to levy GST on these services. These are platforms such as Airbnb, VRBO, Expedia, Uber and so on. This obligation applies irrespective of whether the owner/driver involved is GST registered or earns less than $60,000 annually.

It’s essential to emphasize that these law changes solely pertain to listed services and do not extend to impact other sectors, even if they are transacted through a platform. Popularly dubbed as “the app tax,” these revisions signify an attempt to harmonize taxation with the gig economy.

GST PLATFORM RULES

Here is an overview of the rules: Suppliers e.g. Uber drivers, people running Airbnb-type accommodation, who are conducting business through these platforms will be exempt from GST registration if their annual revenue remains below $60,000. Note that is revenue (sales before expenses), not net income. Instead, the responsibility for GST charging, collection, and remittance on the provided services will rest with the platforms.

A notional “input tax credit” equivalent to 8.5% of the service value (e.g. the service value would be the cost of the Uber ride or the cost of staying in the Airbnb property) will be permitted, effectively subjecting GST to 6.5% of the service value. This credit is intended to be transferred to the underlying supplier by the platform, likely as a deduction from commission charges. The purpose of this 8.5% credit is to compensate unregistered underlying owners/drivers for the GST paid on their operational expenses.

For suppliers already registered for GST, no supplementary credit will be issued, and they will continue to claim GST input tax credits (i.e. on the expense part of the GST return) on their expenditures. However, if they opt not to opt out of the platform rules, they will be deemed to make a zero-rated supply to the electronic marketplace operator. Consequently, the supplier should not report GST on payments made by end customers to the platform.

SHORT-STAY ACCOMMODATION PROVIDERS

For accommodation providers (those who own holiday homes) whether GST-registered or not, there are distinct implications to consider:

Accommodation Providers Not GST-Registered:

Starting April 1, 2024, platforms (e.g. Airbnb) must apply 15% GST on the nightly rental and associated fees (such as cleaning fees) for each booking facilitated through their platform. This applies regardless of whether the accommodation provider’s (e.g. someone who owns a holiday home) earnings fall below the $60,000 GST threshold. Notably, bookings made before April 1, 2024, may not be subject to these new rules.

The 15% GST collected by the platform will essentially be divided, with 6.5% remitted to the Inland Revenue, and the remaining 8.5% credited back to the accommodation provider (you) as a flat-rate credit (likely deducted from commission charges). So what this means is that the platform (e.g. Airbnb) will pay the GST to IRD. You don’t have to. And the platform should give you a partial credit back.

Note that receipt of this flat-rate credit stops the unregistered owner from claiming GST based on actual expenses. It’s also crucial to note that while the accommodation supply is subject to GST, the underlying property itself remains outside the GST net. Thus, if the property is sold in the future, it won’t be subject to GST unless the owner is otherwise obligated to register for GST.

However, if significant capital expenditure is anticipated, such as renovations or extensions, registering for GST might offer benefits. Nonetheless, registering brings the property into the GST net, subjecting it to GST upon sale or change in use. Importantly, if the platform’s supplies exceed $60,000, either through increased rentals or acquiring additional properties, the accommodation provider (you) must register for GST. Professional advice should be sought in such cases: contact us!

Accommodation Providers Already GST-Registered:

By default, platforms will charge GST on nightly rentals and fees for bookings made on or after April 1, 2024. In this scenario, GST-registered accommodation providers (that’s you, the reader) must zero-rate their supplies to the platform.

For those subject to platform rules, GST payable on guest stays will be remitted directly to the Inland Revenue by the platform. Accommodation providers must declare this income as a zero-rated supply in GST returns.

Providers (again, that’s you) must inform the platform (e.g. Airbnb, Bookabach) of their GST registration status to prevent the incorrect claiming and passing on of the 8.5% flat-rate credit. Any erroneous receipt of this credit must be repaid to the Inland Revenue.

Regarding property sales, existing rules apply: zero-rated sales to GST-registered buyers for taxable activities, or 15% GST for non-registered buyers. However, transitional repayment rules may apply in specific situations, allowing capital assets to exit the GST regime and potentially exempting them from GST upon future sales.

TRANSITIONAL REPAYMENT RULES

For properties acquired before April 1, 2023, primarily for personal use, there’s a window until April 1, 2025, to exit the property from the GST regime. This option may appeal to those whose main intent is personal use and who have only sporadically rented their properties throughout the year. However, there’s an initial financial outlay involved, as any GST inputs claimed for capital expenses on the property must be reimbursed, along with any additional nominal or change-of-use GST adjustments if the property was zero-rated upon acquisition.

Similarly, for assets procured after April 1, 2023, there’s an opportunity to elect that any future sale of the assets isn’t subject to GST, provided no GST has been claimed on the asset, and it hasn’t been primarily used for making taxable supplies.

OUR FINAL THOUGHTS ON THE MATTER

April 1st is upon us, so it’s crucial for anyone involved in providing short-term accommodation to carefully assess how these new rules might affect them. This is especially pertinent as many individuals may have assumed, with a change in government, that the new rules would be rescinded. You should also be aware of the problems briefly alluded to above if your annual revenue exceeds 60K. See info here. Need some help? Contact us today.