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The gig economy GST ‘app tax’ - what does this mean for short-term rentals?

Updated: Mar 12


Note: Information is current as of December 2023


National vowed to repeal the incoming ‘app tax’ as an election promise. This will no longer be the case with a newly formed coalition government. But what does this mean for the gig economy? It is not as bad as one may think.


GIG ECONOMY 


The gig economy is comprised of food delivery, accommodation, and ride-sharing services such as Airbnb, Uber, and Uber Eats. 


At the beginning of 2023, the National Party campaigned against mandating a Goods and Services Tax (GST) on gig economy platforms, pledging to abolish the upcoming law should they win the election. As National did not receive a majority share of seats, their coalition with the ACT and New Zealand First parties has meant a series of negotiations, including a verbal announcement that the ‘app tax’ would be going forward.


This law change will see all platform operators in the gig economy charging GST on provided services regardless of whether the seller is GST-registered or not. 


APP TAX


The good news? Although not ideal, the newly imposed GST rules, set to take effect on 1 April 2024, are not as drastic as they may appear to be - while platforms will be collecting GST on seller services, a flat-rate scheme has been implemented, which will see an 8.5% tax deduction for unregistered GST sellers. Sellers, including property owners, who are not registered for GST and do not expect to make more than $60,000 annually will not need to register for GST. 


Platform operators will collect GST at the standard rate of 15%, but only 6.5% will be lodged with Inland Revenue. That is 6.5 cents for every dollar. The remainder will be credited back to sellers if they are not already GST registered. 


Across the entire short-term rental market in New Zealand, we expect to see a slight increase in daily rates to compensate for GST charges so property owners do not lose income. 


Furthermore, while non-GST registered property owners will still have GST charged on their bookings by platform operators, these charges will not bring the underlying property into the GST net. If it is sold in the future, it is not subjected to GST if the property owner is not otherwise required to register for GST. 


Any income the platform operator receives will be considered zero-rated as GST has already been collected and submitted to Inland Revenue. For example, if a property owner is renting their home on Airbnb for $240 per night, Airbnb will collect $36 as GST. From this, $15.60c will be lodged with Inland Revenue, while the remaining $20.40c will be returned to property owners as a tax deduction. As Airbnb has already paid GST on the $240, the property owner does not need to pay GST output tax again.


GST REGISTERED


Currently, property owners who earn more than $60,000 per annum in taxable income streams are already required to register and pay GST. Your taxable income does not include your salary if you are an employee. 


If you are already GST registered, no additional credit will be provided and property owners should continue to claim GST input tax credits on their costs. GST-registered property owners will need to include the supply of their listed services sold through online travel agents as a zero-rated supply in their GST return.


If GST-registered sellers accidentally receive an 8.5% flat-rate credit, they will be required to account for this in their tax return. 


The Commissioner will be granted the power to disclose a seller’s GST registration status to platform operators to facilitate a seamless process. Please be aware that if you are expected to earn more than $60,000 per annum, you need to register for GST. 


WHO WILL HANDLE THIS?


Platform providers will handle both collecting and remitting GST under the flat-rate scheme, and no extra work is required by property owners who are not GST-registered. In the case of short-term rental property management companies, they can act as a "listing intermediary." This means they would seen as making a zero-rated supply to operators such as Airbnb and be responsible for deducting input tax in line with the flat-rate scheme for non-GST registered property owners.


If you have any questions or concerns, reach out to The Stay Hub Short-Term Property Management for guidance. 

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