Articles by Anthony Strevens
Anyone who provides lodging or ride-sharing services through an online marketplace in New Zealand, such as Airbnb or Uber, will be affected by new Goods and Services Tax (GST) changes, which came into force on April 1, 2024.
What is the new legislation?
Prior to 1 April 2024, service providers were exempt from GST if their turnover was below the $60,000 GST registration threshold. However, the new legislation mandates GST on accommodation and transport services facilitated through electronic marketplaces, regardless of the GST registration status of the property owner or driver.
The legislation introduces a new category of services called 'listed services’, encompassing commercial, short-stay, and visitor accommodations (like Airbnb and Bookabach), as well as ride-share and food/beverage delivery services (such as Uber and Ola).
Under this change, the electronic marketplace is considered the service provider and is obligated to collect and remit 15% GST on all services provided to end-users through their platform.
The examples in this article focus on the implications for property owners, but the rules apply to everyone caught under this legislation.
Does this mean I have to register for GST if I own a property and rent it out via Airbnb?
No, this does not mean that a property owner who so far has not been obligated to be registered for GST, suddenly has to register for GST. Whether or not you have a mandatory obligation to register for GST will continue to depend on whether gross turnover from taxable supplies exceeds $60,000 per annum or not. If gross turnover from short-term rent is below the $60,000 threshold, you can continue to choose to not be registered for GST. (Note this is not a property by property test. If you own two properties that are both generating $40k in gross short-term rental income, then you are obligated to be registered because 2 x $40k = $80k, which is more than the $60k threshold that triggers the requirement for GST registration.)
Will I be at a disadvantage if I am not registered?
No, you will not necessarily be at a disadvantage if not registered for GST. The platform provider will pay you some of the GST collected, and if the market price shifts upward due to the application of GST, you will get part of the increase. This is a point best illustrated by way of an example.
Let’s say that you have a property that is rented out at $200 a night via Airbnb. Airbnb charges guests $230, which includes $30 of GST that you would expect Airbnb pay to the IRD. However, they will pay $17 (being an amount based on 8.5% of the $200 value of the supply) to you as a non-registered property owner as a “flat-rate credit”. Therefore, you get $217 of the $230 (excluding any fees from Airbnb and ignoring cleaning and other costs and services).
Do I have to pay income tax on the $17 flat-rate credit?
No, you do not. The $17 flat-rate credit is not taxable income. The catch is that a full deduction cannot be claimed for the GST inclusive costs associated with the short-term stay activity.
For example, if you spend $2,300 on property insurance, up until now you would have claimed a deduction for income tax purposes as a non-GST registered owner on the GST inclusive cost of $2,300. Under the flat-rate credit scheme, your deduction for income tax purposes is based on the GST exclusive amount. With GST at 15% the calculation is $2,300 / 1.15 = $2,000. (You claim $2000, not $2300 for income tax.)
The main takeaway point from this is that these rules are going to add complexity to the affairs of a non-GST registered property owner.
What are the implications for GST registered property owners?
GST registered property owners will cease to pay GST on their income, because Airbnb will be paying it on their behalf. In the example where Airbnb charges $230 per night, including $30 of GST which is paid to the IRD, a GST registered property owner gets the net $200 and returns that as “zero-rated” revenue. This means no GST is paid on the $200 net receipt. A GST registered property owner continues to claim GST on expenses incurred in the normal manner.
Sounds complicated; are there any other complexities?
Of course there are. If you rent out your property directly as well as having it listed on a platform like Airbnb, then you are subject to a hybrid of the new rules and previous rules. If you are registered for GST, you would need to collect and pay GST on the rent you receive directly versus treating the income from Airbnb as zero-rated supply as noted.
What do I do if I am a property owner renting out a property short term?
Get advice. Not only do you need to know how these new rules may impact your rental activity, it would also be an opportune time to review whether or not you should be GST registered in relation to the property activity. This is not always a straightforward question.
Generally speaking, our clients are reluctant to be registered for GST knowing that it means there is a contingent GST liability that will come home to roost when the property sells. This is because you pay GST back on cost plus any capital gains. However, there are other considerations, such as whether the benefit of claiming GST in the short-term and having the use of that money outweighs the downside of paying GST on the capital gains. This is a discussion we have on an increasingly frequent basis with clients.
Larger commercial operations can opt out
It’s important to note that large commercial enterprises providing over 2,000 nights of short-stay accommodation annually through a marketplace can opt out of the new rules by entering into an agreement with the marketplace operator. This allows them to retain responsibility for their own GST obligations.
Summary
In summary, GST-registered owners should see no change in their financial situation. For non-registered individuals on the other hand, things will be a bit more complex, especially with regard to calculating expense claims.
If you require assistance in understanding the impact of this new GST rule, please contact your GRA CSM, or if you are not a client, request a meeting to see how we can help (the first meeting is free to new clients).
"Hi Anthony.
I note that you make no mention of the exemption for taxation for those whose rental in total is less than $4,000 pa.
Could you add this to your article?"
Thank you for your comment, Peter. As with all our blogs, this was not meant to be an exhaustive analysis of tax law. There will be smaller details with most subjects that would be impractical to describe in full. As always, we recommend that people seek advice from qualified professionals about how tax law applies to their specific circumstances. Our blogs highlight matters of interest and of course should not be construed as specific tax advice.
""Hi, a very informative article. I have one question regarding all this. If a person receives income from AIRBNB for providing services, like my friend who is a photographer offering photography services to AIRBNB, is his income taxable under GST? He is a GST-registered individual.""
This change won't affect the photographer's GST situation. Whether or not the photographer charges GST will depend on whether they are themselves GST registered. If they are GST registered, which you say they are, then they should be charging GST on top of their fees for their professional services regardless of the GST status of their customers (including AirBNB).
When we started with GRA we werent certain of the benefits they could provide us. However they quickly unravelled our complex situations with multiple companies and structured our businesses so that we received maximum personal protection and minimised our tax liabilities. They have always been accurate on time thorough and available to answer our questions. Now six years after first moving to the team at GRA they have skilfully guided us to a future that looks amazing. It is with confidence we make decisions knowing our interests are protected by an outstanding group of modern forward thinking professionals. Their guidance has been invaluable and we can thoroughly recommend GRA - Dougall Love and Janice Knowles - June 2017
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