GST rules for Airbnb operators set to change

A change to the rules around how GST applies to services in the platform economy, such as Airbnb and Uber, will likely come into effect on 1 April 2024 as part of the Taxation Annual Rates for 2022-23 Platform Economy and Remedial Matters) Bill (No 2).

The proposal

The Bill proposes that GST is to be levied on all platform economy supplies. For the individual suppliers who are not registered for GST, the platform providers such as Airbnb will be required to collect the GST directly from consumers and disperse a portion to Inland Revenue and a portion (a flat-rate credit) back to the supplier.

Individual suppliers earning under the $60K/annum revenue threshold will continue to be exempt from having to register for GST.

The rationale

The Government argues that some platform services provided normally would be subject to GST. But because they’re being passed through these electronic marketplaces, from providers who are under the GST-registration threshold, that’s not always happening. They say:

“If this was to continue it could have adverse consequences for the long-term sustainability of the GST system and place traditional suppliers of these services who are charging and returning GST at a competitive disadvantage. It could also undermine New Zealand’s broad based GST system.”

The intention is that the changes will put everyone on a level playing field as far as GST is concerned.

It also brings these digital platforms in line with online or remote services such as Netflix. Legislation dubbed the ‘Netflix tax’ that came into effect in 2016, requires overseas businesses meeting the GST registration rules to charge and return GST on online or remote services they supply to New Zealand customers.

More about GST on remote services supplied by overseas businesses

How the proposed changes will work

The best way to explain how the new rules will work in practice is through an example:

Mike owns a bach in the Coromandel that he rents out on Airbnb when he’s not using it. As he earns under the $60K/annum GST threshold, Mike is not registered for GST.

Sally books accommodation through Airbnb from Mike for $200 excluding GST.

Airbnb will then be required to:

Collect GST of 15% ($30) directly from Sally
Deduct input tax of 8.5% of the $30 GST and pay $17 to Mike as a flat-rate credit
Pay the remaining $13 to Inland Revenue as the net GST collected on the supply.

What’s not changing

Two main things that will not change under the new legislation:

If you earn over the $60K/annum income threshold you will still need to register for GST and levy GST in the usual way.
Under current rules, if you are registered for GST, subsequent on-sale of associated assets or property are subject to GST; this will continue. Likewise, as far as we know, there is no intention for non-GST registered service providers to have to return GST on the subsequent sale of their assets.

Impacts

One of the main implications of this legislation is that consumers will have to pay a higher amount for services provided by small operators and non-GST registered operators will no longer enjoy a competitive advantage over their larger competitors.

It is predicted that the changes will bring in around $47 million in extra tax revenue.

More about the changes in the Regulatory Impact Statement