New legislation, commonly known as the “App Tax”, has been enacted to provide specific GST rules around the use of marketplace services such as Airbnb.

They will come into effect from 1 April 2024.

Who do the new “App Tax” rules affect?

Suppliers of "listed services" made through an electronic marketplace will be subject to this GST, regardless of whether the provider is GST-registered.

That includes the supply of accommodation, other than accommodation that would be GST-exempt, that is performed, provided, or received in New Zealand.

From 1 April 2024, marketplace operators (such as Airbnb and Bachcare) are required to collect and return GST at the standard rate of 15% on accommodation provided through the operator, even if the underlying supplier (the property provider/owner) earns under $60,000 annually and is not GST-registered.

For those who aren't GST-registered, the GST charged will be in addition to your rental. That may mean that the rental you receive is reduced by the amount of the GST charged.

A non-registered property provider/owner will receive an 8.5% flat-rate credit from the marketplace operator that is designed to cover the GST that would have been claimable on the property’s expenses. Under this scenario, the property provider/owner cannot claim GST on expenditure related to the property.

This means the 15% collected by the marketplace operator is then split between the Inland Revenue Department (IRD) and the property provider/owner, meaning the marketplace operator must pass 8.5% on to the property provider/owner and the remaining 6.5% to IRD.

For a property provider/owner who is already GST-registered, the marketplace operator will collect and return the GST to the IRD on the rental charged to guests. The property provider/owner will receive the rental income net of GST and will return this as a zero-related supply. The property provider/owner can continue to claim GST input credits on their property expenses.

The property provider/owner is responsible for advising the marketplace provider of their GST registration status, so they are not paid the 8.5% flat-rate credit. A flat-rate credit incorrectly received by the property provider/owner will be required to be paid to the IRD.

As an aside, the changes will have an income tax consequence in terms of the income returned and the amount of deduction claimed for property providers/owners who are not GST registered.

Opting out of the new marketplace rules

Some property providers/owners with larger-scale operations can opt out of the new marketplace rules. Broadly, this is possible if a property provider/owner:

• Has taxable supplies of over $500,000 in a 12-month period; or

• In a 12-month period, provides at least 2,000 nights of taxable accommodation on an electronic marketplace.

Property providers/owners remain responsible for their GST obligations regarding supplies they make through electronic marketplaces if they opt out of the GST marketplace rules.

What you can do to prepare

In preparation for these changes, you should consider:

1. If you are not GST registered, you need to understand the impact this tax will have on your bottom line, such as:

• Will the 8.5% flat rate credit benefit you or will you be better off voluntarily registering for GST and claiming GST on your costs?

Before you decide to register for GST you will need to understand the broader implications in terms of your filing obligations and the implications for your property potentially being subject to GST.

2. If you voluntarily registered for GST, but are not required to be (because gross taxable supplies are less than $60,000), the question is whether to remain GST registered, or should you de-register and receive the 8.5% flat rate credit instead? You will need to consider:

• Will the 8.5% flat rate credit benefit you or will you be better off remaining registered for GST and claiming GST on your costs?

Before you decide to de-register from GST you will need to understand the impact this will have in terms of the deemed disposal of your property at market value for GST purposes.

3. If you are currently required to be GST registered, you need to understand the impact these rules will have on your taxable supply value and whether you may no longer need to be registered for GST. Otherwise, if required to remain GST registered, the impact of the changes will largely be administrative.

Understanding how these “App Tax” changes will impact your short-term rental income is essential for this next financial year. Get clear advice for your specific circumstances by speaking to your local Findex Advisor before 1 April.

Disclaimer:

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex.

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