Tax Talk: App tax to stay – here’s how the new regulations will apply

With National having promised to repeal the platform economy GST rules (the so-called “app tax”), it came as a surprise to many when late last year, the incoming coalition government indicated they would not repeal the “app tax”.

Time to read: 6 mins

The rules were enacted in March last year, taking effect from 1 April 2024. With the government’s announcement, nothing further needs to be done from a legislative perspective and now the new rules will apply as legislated. 

To date, platforms such as Uber and Airbnb have effectively asserted they are acting as agents for the individual drivers and accommodation owners, resulting in the GST obligation falling on the latter. This has resulted in myriad negative impacts to government revenue, including from non-compliance due to ignorance or deliberate choice, and a large number of individual drivers and accommodation owners not even needing to account for GST due to being below the $60,000 compulsory registration threshold. 

The GST Act was amended to change the GST rules around the platform economy. These apply to "listed services", which include: 

  • Accommodation other than accommodation that would be GST-exempt
  • Ride-sharing / ride-hailing services
  • Delivery services for food, beverages or both 

These services need to be performed, provided or received in New Zealand to be captured by the amendments. 

The new rules mean that instead of individual drivers or accommodation owners needing to account for GST, it will instead fall on the platform such as Uber and Airbnb. 

The rules result in two supplies. The first supply will be from the individual driver or accommodation owner to the platform. The second supply will be from the platform to the public. 

Where the individual driver or accommodation owner does not meet the $60,000 threshold for compulsory GST registration, the first supply would be outside the GST net. However, the individual driver or accommodation owner would receive a flat-rate credit of 8.5% from the platform, which is intended to compensate them for the GST input claim they could have made if registered. 

Where the individual driver or accommodation owner meets the $60,000 threshold for compulsory GST registration, the first supply would be zero-rated. They would then be able to claim GST input tax credits as usual. 

The second supply from the platform to the public would have GST charged at 15%. 

Underlying suppliers who have turnover of greater than $500,000 have the ability to opt out of the rules and instead continue to fully account for GST as before. Additionally, accommodation suppliers who list more than 2,000 nights’ accommodation on an electronic marketplace over a 12-month period (or reasonably expect to meet that requirement) can opt out of the rules. 

The Good 

For many businesses, the treatment of ride sharing fares or Airbnb-style accommodation in GST returns has been fraught with confusion and resulted in many errors and queries. The new rules mean that all ride sharing fares will be subject to GST and therefore the GST incurred on any such fares by a business will be able to be claimed in a GST return. 

At a more principled level, these new rules will ensure a level playing field with ride shares such as Uber and accommodation services such as Airbnb being subject to GST on an equal basis to competing modes such as taxis, hotels and motels. 

The Bad 

The devil is in the detail with these rules, and the real sting will be for those who own Airbnb properties. 

As mentioned above, the new rules create a two-supply situation, with the first being from the driver or accommodation owner to the platform, and the second supply being a supply from the platform to the consumer. This could result in nasty consequences for property owners who let their properties and exceed the GST registration threshold. 

The standard rule is that assets used as part of a taxable activity are in the GST net and GST must therefore be accounted for – this includes when the asset either ceases to be used as part of the taxable activity or where the asset is sold. For high-value assets such as real estate in popular holiday locations, this could be a substantial bill if the property is sold and the sale is not subject to compulsory zero-rating. 

Fortuitously, other GST changes mean that in instances where real estate was primarily purchased as a holiday home, but happens to be let on Airbnb, then it could be removed from the GST net. 

The Opportunity 

The same Act that saw the “app tax” enacted also resulted in other changes to the GST Act which allows some assets to be removed from the GST net. There are some quite tight requirements to fall under this concession, which are: 

  • No previous input tax deductions were claimed by the registered person for the goods before the goods were sold.
  • The goods were not acquired for the principal purpose of making taxable supplies.
  • The goods were not used for the principal purpose of making taxable supplies.
  • The goods were not acquired as zero-rated supplies under the compulsory zero-rating rules (applicable to certain land transactions) or if they were, the recipient has paid the GST component to Inland Revenue. 

An example of where this opportunity might be available would be someone who has bought a holiday home primarily for their own use but lets it out via Airbnb from time to time. Because the goods cannot have been acquired or used for the principal purpose of making taxable supplies, and because of the amounts potentially involved, caution must be taken in this area. 

This opportunity is not just limited to those in the platform economy but can also be used more widely, including for farm dwellings, home offices, motor vehicles and other assets that can be used for both making taxable supplies and private use. In addition, assets purchased prior to 1 April 2023, and for which GST was previously claimed, can still elect in to these new rules provided the election is made prior to 31 March 2025; any GST refund is returned to Inland Revenue, and the other criteria are met. Please contact your Baker Tilly Staples Rodway advisor if this opportunity is of interest. 

If you have any queries in relation to the platform economy rules or wish to discuss the potential impact of these rules on your business, please contact your Baker Tilly Staples Rodway advisor.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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