App Tax – Summer Holiday + 15%

AirBnB, Uber, Deliveroo – apps most of us have on our phone and use frequently throughout the year. These platforms have come under the global spotlight as Governments attempt to tax digital services often facilitated by international technology platforms.

New Zealand’s response to this is the “App Tax” or Digital Services Tax seeks to levy GST on these services via the platforms themselves, this is seen as a more effective way to collect revenue compared to ensuring compliance across many smaller operators. This was passed into law by the previous Government and will not be repealed by the new Coalition Government as initially indicated.

Services captured include:

-          Accommodation (Short Stay / Holiday) – AirBnB / Book a Bach as examples.

-          Ride Sharing – Uber as an example.

-          Food Delivery – Uber Eats as an example.

Some key points:

1)      This system essentially creates 2 points of supply.

• Provider to Platform – A person has their house on AirBnB – the first supply is between that person and AirBnB (Platform)
• Platform to Consumer – AirBnB makes a supply of Accommodation to a consumer via their Platform.

2)      This Act levies a 15% GST charge on the second supply, creating a cost to the consumer (as GST is intended to be)

• If the Provider is GST Registered the supply to the platform is Zero Rated so the Net Amount is passed to the Provider who returns this as Zero-Rated income and continues to claim input credits of 15% - this represents an unchanged final outcome for a GST registered provider. The Platform returns 15% to the IRD.
  
• Where the Provider is not GST registered the Platform will split the 15% GST with 6.5% being remitted to the IRD and 8.5% being remitted as a flat rate charge to the Provider – this is a mechanism to compensate the Provider for the input credits they don’t claim – this represents an uplift in income (all else staying equal), and the subsequent increase in income tax.
  
• This will not create a situation where the asset used is captured by the GST system and liable for GST on sale, however it is important to understand that if income does exceed $60,000 the same requirements to register for GST still exists.

3)      Opt Outs – the Act recognises that there are providers in the market who are of such scale this system isn’t required – these are largely hotel / motel business where:

• Turnover exceeds $500,000 a year – no platform consent required.
  
• More than 2,000 nights offered a year – platform consent required.

Some open questions and things to watch for:

1)      What will this do to pricing in the market – as all services are now required to have GST added, will this be a 15% increase, or a decrease in underlying revenue (particularly to non-registered providers), furthermore impacts of pricing on demand?

2)      Each App will need to facilitate capturing GST registration information and opt out (where conditions are met) – many assumed the new government would repeal this Act, so some were caught unprepared.

3)      Is there benefit to registering for GST voluntarily or removing the asset from the GST net – understanding the impact of GST registration of the asset used, and implications on sale or exit – especially considering the new principal purpose test and transitional rules for exiting assets from the net.

4)      Documentation from Platforms – from 1st April GST registered persons will need to treat income differently (Zero Rated), and Non-Registered will need to consider treatment of the 8.5% rebate.

If you have a property on AirBNB or another platform please reach out to the team at Direct Advisory today to chat through how these changes might impact you.

This document does not constitute tax advice and is current at the time of writing.

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