GST, Airbnb and Uber: Tax battle against the gig economy steps up a gear
02 November 2022
The Inland Revenue Department (IRD) has its sights set firmly on the gig economy, with changes coming to how GST is accounted for on income from services such as Airbnb accommodation, ride sharing platforms like Uber and Lyft and others. These new rules will apply to everyone – whether GST registered or not.
The government is relentless in its pursuit of GST on all goods and services, having compelled providers like Netflix and Amazon to apply GST to sales to New Zealanders through their platforms, which shows the tax system is catching up with technology and changes could apply to any services booked and paid online.
While tax already applies to those who are GST registered, the new proposals (driven out of the OECD) make platform suppliers responsible for collecting and administrating the tax. These proposals represent a huge sea change from the voluntary compliance arrangements currently in place.
In this context, the changes represent a complete overreach for ‘generally compliant’ GST registered taxpayers. While the proposals do not impose any additional GST, people will have to adapt their systems of capturing and returning the tax. An example is with Airbnb who will pay GST on a hosts’ accommodation receipts, and the host will need to file a GST return that zero rates these supplies and claims any GST input tax credits on their outgoings. While it sounds fine in theory, the devil is in the detail.
For those not GST registered, the proposal is to impose GST on their accommodation supplies and Uber services, which until now were outside the GST net. That is, these suppliers are essentially forced to pay GST although not required to be GST registered. The platform provider accounts for the GST to IRD and claims a notional GST input tax credit on the supplier’s behalf and is required to pass this credit back to the supplier. This substantially complicates matters for the gig economy and has ramifications for thousands of New Zealanders who have had nothing to do with the GST collection regime prior.
For non-GST registered people, these proposals also beg the question of the status of property used to derive the GST taxable supplies. With Airbnb, it’s the bach in Bluff and with Uber, the driver’s vehicle. Inland Revenue’s published view is that anything used to make GST taxable supplies is a GST taxable asset and subject to GST on sale.
While the policy position is that these proposals will not bring assets of non-GST registered persons into the GST system, the IRD had a similar policy with farmhouses before changing its position.
Data collection will be key to the coming changes. Platform providers will be required to gather identity information from their hosts to be shared with Inland Revenue. In turn, Inland Revenue will share this data with Revenue Authorities in other jurisdictions where the provider is tax resident.
For example, the data of an Australian tax resident owning short-term accommodation in the Marlborough Sounds who lists through Airbnb will end up at the Australian Tax Office.
This effect may well negatively impact the use of gig economy platforms for two reasons. One, the proposals undermine the GST registration deminimis that allows people who supply goods and services below $60,000 per annum to legitimately remain outside the GST system and its added hassle and inconvenience. This is borne out by many people keeping short-term accommodation below the GST registration threshold to avoid the attendant compliance costs. Secondly, the disclosure of personal information may outweigh the benefits of using these platforms for some.
At a high level, if the system works well, compliance shouldn’t be a major cost. But there is no such thing as a compliance-cost-free tax system. And when there are exceptions, such as errors from the platform provider, identity confusion, or disagreements with the IRD, the compliance costs will escalate dramatically.
The proposed changes take effect from 1 April 2024.
For more information on these changes or to discuss your situation reach out to our Tax Advisory team here.