Yes, it’s really ‘app-ening! GST on digital platforms now in force.

By Viola Trnski & Sarah Kennedy

If talk of an “app tax” flew over your head during a busy 2023, you may be surprised to learn that it is now in force and has not been repealed, despite promises during the 2023 election campaign. From 1 April 2024, digital platforms (software that facilitates “peer-to-peer” transactions) (“Platforms”) are required to pay GST on “listed services” (ridesharing, food and beverage delivery, and short-stay accommodation) (“Rules”).

While New Zealanders were jumping in rideshares and booking holiday getaways, politicians and Inland Revenue officials were thinking about whether Platforms should be paying GST.

The question arose because many listed services provided through Platforms fall under the $60,000 GST registration threshold, meaning the underlying supplier (i.e., the ride-share driver or short-stay accommodation host) was not required to register for GST. The platform economy has been growing exponentially in the last few years.

Officials were concerned that the increased use of Platforms would erode the GST base over time and lead to competitive distortions between direct suppliers and those operating through Platforms. The latter were considered to have an advantage because they were not required to pay GST on every transaction, contributing to lower prices and less tax being collected. To keep in line with New Zealand’s “broad base, low rate” tax framework, Officials recommended the Rules capture these services within the GST net. 

Rules survive a change in Government

The Labour government legislated for GST to be levied on Platforms in the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023. These changes were enacted in March 2023 with an effective date of 1 April 2024 to give Platforms time to prepare systems.

This meant there was a window of time where the Rules were enacted but not yet in force – prior to the 2023 Election, National campaigned on “axing the app tax” and promised to repeal it if elected. At the time, they argued it would increase the costs of such services at a time when the cost of living was already soaring.

Therefore, it came as a surprise when they quietly walked back on axing the Rules post-election. Since that decision, Officials have been working through some small improvements and clarifications to the Rules. The policy question of whether to tax these services has been and gone – the Rules are here to stay, and this is what you need to know. 

Can sellers claim back GST costs on making taxable supplies?

Yes and no.

For sellers that are not GST-registered – who are most impacted by these rules – the Platform will pass on a flat-rate credit of 8.5% of GST collected back to the seller. This is designed to approximate the GST that could be claimed back as an input tax deduction if the seller were GST-registered while reducing the compliance cost of sellers having to record their actual GST costs.

Essentially, this means that only 6.5% of the 15% GST charged on Platforms is collected by Inland Revenue, if the underlying supplier is not GST registered.

To illustrate with an example, say Joe lists a room in his holiday house on a Platform to make some extra income. This generates about $23,000 per year which is below the GST registration threshold. Going forward, the Platform will return GST on this amount ($3,000 – being 3/23rds of the income). As a proxy for the GST Joe spends on guest stays - for example, linen and coffee for guests - $1,700 (the flat rate credit amount of 8.5%) is returned to him by the Platform. The remaining 6.5% of GST is paid to Inland Revenue by the Platform.

This all seems reasonably straight forward, but when you factor in that in many instances the Platform was not handling all the income, it is slightly more complex.

For sellers that are GST-registered – the net GST position will not change. However, the key difference for GST-registered sellers is that the Platform will now collect and pay GST to Inland Revenue on the seller’s behalf (unless an “opt-out” provision applies, as discussed below). Suppliers will include these sales as a zero-rated supply in their GST return and continue to claim GST on expenses as they have in the past.  Suppliers with turnover exceeding the $60,000 threshold are still required to be registered for GST and cannot use the flat rate credit scheme.

To build on the previous example, Joe moves overseas and also lists his three bedroom house on a Platform which brings in an additional $50,000 per year. Now Joe’s income from his short-stay accommodation side hustle has exceeded the $60,000 threshold. Joe registers for GST and files a GST return, claiming back input tax deductions on the expenses incurred in renting both homes; all accommodation provided through the Platforms are included as income in his GST return, but included in the zero-rated supplies box. The Platform collects and passes on the GST directly to Inland Revenue. 

Excluded sellers and property managers

Some GST-registered accommodation hosts can choose to “opt-out” of the Rules and continue filing their own GST returns i.e. opt-to-pay GST. To opt-out, accommodation hosts must make more than $500,000 of taxable supplies, or list more than 2,000 nights, on a single Platform in twelve months. Operators who do not make more than $500,000 of supplies but meet the 2,000-night threshold must have the agreement of the Platform to opt-out of the Rules.

There are also specific rules that apply to short-stay property managers, referred to as “listing intermediaries”.  These intermediaries will be responsible for passing out flat-rate credits to owners and also have some decisions to make on whether they wish to request an opt-out or have the Platform return the GST. 

Not all Platforms are the same…

Not all Platforms have developed systems for all types of suppliers and opt out scenarios yet. In the meantime, some Platforms have made a commercial decision to only cater to a section of the market. 

For example, some Platforms that focus more on the hotel space will only allow GST-registered suppliers who operate on a large scale and can opt-out of the Rules to remain on their Platform. This means a hotel that meets the opt-out thresholds will continue to deal with GST as they have before and those who are not registered or do not meet the opt-out tests will be removed from the Platform. At the other end of the scale, some Platforms that generally deal with smaller suppliers are planning to return GST on all sales and contractually not allow opt-outs to occur. 

In practice, what this means is every supplier needs to review any communications from Platforms carefully to understand the consequences of their specific situation. Suppliers may be in a position where each Platform they list on has a different approach.

Hand in hand: Information reporting and exchange rules

Accompanying the Rules are new reporting requirements for certain New Zealand resident Platforms. Information must be reported by:

• online marketplaces that connect buyers and sellers of certain
  services, and
• sellers on online marketplaces that receive income from certain services.

The services included are:

• renting immoveable property (e.g., commercial property, short-stay
  accommodation, carparks), and
• personal services i.e., any time-based or task-based work performed by an individual (or individuals) that is adapted to the requirements of the buyer requesting the work (e.g., ridesharing, food delivery, and web design services).

This information will make it easier for Inland Revenue to monitor compliance and ensure that transactions captured under the new Rules are visible. This will bring reporting in line with income earned from salary, wages, and investments. The reporting framework applies from 1 January 2024 with the first reports due on 7 February 2025.

There are also separate reporting requirements which extend the scope of services to also include the sale of goods and vehicle rentals. An effective date for these extended rules has not been confirmed in the legislation, which instead provides that they must be implemented on or before 31 March 2026. Officials recommended implementing the extended rules in New Zealand to ensure Inland Revenue can receive information from overseas tax authorities, however, noted that deferring the start date would allow for further consultation with affected platforms. 

Regarding immoveable property and personal services, Inland Revenue will require online marketplaces to report on:

• Reportable (registered) and active (provided, or received income from, services during the calendar year) sellers. Specifically:

• Details of immovable property:
  • Address of each property listing,
  • Land registration number (if known),
  • Number of days each property listing was rented during the calendar year, and
  • Type of each property listing (using a category schema)

• Self-reporting information about the online marketplace (name, registered office address, IRD number (or TIN), and business name for each reporting platform).

What next?

It will take some time for all suppliers to develop a good understanding of the Rules. In the meantime, they should read all communications from Platforms carefully and make sure that the required updates are made to the information and pricing listed on the Platform. 

• If you are GST-registered, you should carefully review statements issued by each Platform and work through your first GST returns carefully to make sure that the GST is correct. You should also be on alert if you incorrectly receive a flat-rate credit you are not entitled to.
• If you are not GST-registered, you should make sure that each Platform is aware of your status and confirm that your listings can remain on their site. You will not have to file GST returns; however, you should track your flat-rate credits and make sure that these and any costs incurred in running your business are treated correctly in your income tax returns for the 2025 tax year.
• If you are a listing intermediary, please seek further advice as there is more complexity in the Rules for you.

The full impact of the changes, such as the portion of the GST cost that is passed on to consumers and New Zealand’s desirability as a tourist destination (which some Platforms warned could be negatively impacted), remains to be seen.

If you have any questions on the content of this article, please get in touch with your usual Deloitte advisor.