Return of the 'app tax'
Tax Alert - December 2023
By Sam Hornbrook & Tafadzwa Marerwa
The GST changes for short-term accommodation and ride-sharing that apply from 1 April 2024 and what you need to do now.
Effective 1 April 2024, platforms operating in ride-sharing, food delivery, and short-term accommodation services (referred to as "listed services" in the legislation) will be required to charge GST on these listed services, even if the underlying owner/driver is not GST registered and makes under $60,000 per year.
It is important to note that these changes are specific to listed services only and do not extend to impact other sectors, even if they are sold through a platform. Commonly referred to as "the app tax", these adjustments reflect an effort to align taxation with the gig economy. The legislation is already in place, but many aspects only come into effect from 1 April 2024.
Recent election outcome
Both the National Party and ACT campaigned on a tax policy that included repealing the incoming GST rules for the platform economy. However, as a result of coalition negotiations, new Prime Minister Christopher Luxon has verbally confirmed that these would no longer be subject to repeal by the incoming coalition government. This surprise announcement means that the new rules will be going ahead as planned with a commencement date of 1 April 2024. This has significant implications for businesses operating in the platform economy, especially for those who may not have made system updates or changes under the assumption that the rules would be repealed, and implications for the underlying owners and drivers.
Overview of the GST platform rules
As outlined in our September 2022 article, the rules extend and expand existing GST marketplace rules to cover listed services, making more activities effectively subject to GST. Notably, suppliers operating through these platforms will not need to register for GST themselves if they continue to make under $60,000 per year; instead, the platforms will be responsible for charging, collecting, and remitting GST on the services provided.
A notional "input tax credit" of 8.5% of the value of the supply will be allowed, effectively applying GST to 6.5% of the service value. This credit is to be passed on to the underlying supplier by the platform (presumably as a deduction from commission charges). This 8.5% credit is intended to compensate the unregistered underlying owner/driver for the GST they have paid on their operating costs. For suppliers already registered for GST, no additional credit will be provided, and they will continue to claim GST input tax credits on their costs; however, if they don’t elect out of the platform rules they will be treated as making a zero-rated supply to the operator of the electronic marketplace (and the supplier should not return GST on the payments by the end customer to the platform).
The comments below focus on short-term accommodation services but are equally applicable to ridesharing and food-delivery platforms.
Implications for accommodation providers
Larger operators (hotels and holders of management rights)
Broadly speaking, hotels, motels, hostels etc. making annual GST taxable supplies of more than $500,000 have the option to opt out of the platform rules, without requiring the platform's consent. An alternative opt-out path is available for those with over 2,000 nights listed annually, though this requires agreement with the platform, and at a practical level, many of the operators with over 2,000 nights will also exceed $500,000 per annum. By opting out, the hotel would effectively continue as normal (i.e. the hotel would remain responsible for collecting and returning GST on the gross value of accommodation services provided).
Providers unable to opt out must carefully assess and plan for any necessary system changes. Additionally, for short-term accommodation managed by a third party, a clear understanding of legal arrangements is essential to determine the "underlying supplier" under the rules, whether it be the unit owner or the manager.
We do not yet have specific details on how each booking intermediary will facilitate the opt-out discussions, we suggest you reach out to your usual Deloitte Advisor to discuss your next steps.
Holiday-home owners
There will be different implications for GST-registered and non-registered accommodation providers.
Accommodation providers who are not currently GST-registered
- The platform will be required to charge 15% GST on the nightly rental (and any other related fees charged, e.g. cleaning fees) on each booking made through their platform on or after 1 April 2024 (even if the accommodation provider earns well under the $60,000 per year GST threshold from the accommodation). This means that there could be a mix of stays after 1 April 2024 that are not caught by the new rules (as the booking was made prior to 1 April 2024).
- The 15% GST charged by the platform will in effect be split, with 6.5% of the GST being paid to Inland Revenue and the remaining 8.5% of the GST charged being paid to the accommodation provider by the platform as a “flat-rate credit” (presumably as a deduction from commission charges). Receiving the flat-rate credit means that GST cannot be claimed by the actual unregistered owner based on actual expenses incurred.
- While the supply of the accommodation will be subject to GST, the changes do not bring the underlying property itself into the GST net. This means that if the property is sold in the future it will not be subject to GST if the owner of the property is not otherwise required to be GST registered.
- If substantive capital expenditure is expected, such as a renovation or extension, there may be a benefit in registering for GST. However, the key downside is that the property will be bought into the GST net, and it will be subject to GST if it is sold or there is a change in use. Further advice should be obtained.
- It is very important to remember if supplies through the platform ever exceed $60,000, either through increased rental or acquiring another property, there will still be a requirement for the accommodation provider to register for GST (see below).
Accommodation providers who are already GST-registered
- The default position is that the platform will be required to charge GST on the nightly rental (and any other fees charged) on each booking made through their platform on or after 1 April 2024. If this occurs the underlying GST registered accommodation provider must zero-rate their deemed supplies to the platform.
- Many operators who earn over $500,000 are expected to opt out of the platform rules and continue to account for and pay GST themselves (discussed above).
- Where the platform rules apply (and the operator has not opted out), the GST payable on the guest stay will be paid to Inland Revenue directly by the platform. The accommodation provider will need to include this income as a zero-rated supply in GST returns.
- The accommodation provider will need to tell the platform about its GST registered status so that the platform does not claim and pass on the 8.5% flat-rate credit. If this is received in error, it must be repaid to Inland Revenue. Further communications on this are expected in the coming weeks.
- Any future sale of the property is treated as it is currently, i.e., it will either be a zero-rated sale if it is to a GST-registered person who will use it for a taxable activity, or subject to GST at 15% if sold to a non-registered person. However, if the principal purpose for which the land was held was not taxable use, the new (and separate) transitional repayment rules (discussed below) may be used which can allow for capital assets to be taken out of the GST regime in certain situations, which can remove the liability to return GST on any future sale of the property.
For more details on the rules, please see the Inland Revenue special report.
New transitional repayment rule
If a property was acquired prior to 1 April 2023 and acquired predominantly for private use, there is a window until 1 April 2025 to remove the property from the GST regime (see our April 2023 article for more details). This will likely be attractive for those whose main purpose is personal use and who have only been renting their properties out for a few months each year. However, there is an initial financial cost as any GST inputs claimed in relation to capital expenditure on the property need to be repaid (together with any further nominal/change of use GST adjustment if the property was zero-rated when acquired).
Likewise, for assets purchased after 1 April 2023, there is the potential to elect that any sale of the capital assets is not subject to GST, provided that no GST has been claimed on the asset, and the asset has not ever been used for the principal purpose of making taxable supplies.
Conclusion
The 1 April 2024 deadline is fast approaching, and we suggest that anyone who is involved in providing short-term accommodation carefully considers how they may be impacted by these new rules. This is particularly important as there will be many people who will have assumed with a change in Government that the new rules would have been repealed.
As these changes unfold, we anticipate more detailed communications from platform operators. For personalised guidance and next steps tailored to your situation, we encourage you to reach out to your usual Deloitte Advisor.
December 2023 - Tax Alerts
