Up until 31 March 2024, those people that used Uber and Air BnB platforms had an obligation to comply with the Goods and Services Act. Despite this, many people didn’t pay GST on the income earned from the likes of their driving activities or from letting out their properties. Non-compliance occurred for a variety of reasons such as individuals not being aware of their obligations or not wanting to comply.
Either way, the Government ended up out of pocket. To remedy this situation, on 1 April 2024, the legislature introduced onto New Zealand’s statute books the “App Tax”.
Under this legislation, the obligation to deduct and pay GST now falls on the platform owner such as Uber and Air BnB rather than the individual drivers or accommodation owners. This obligation applies irrespective of whether you are registered for GST or not. To demonstrate how the App Tax works, we’ve provided the example below
EXAMPLE
Let’s assume you register and rent out your property using the Air BnB platform. Let’s further suppose you charge $250 per night, and you rent the home for 4 consecutive nights, earning $1000 in rental income.
Air BnB will charge the tenant $1000 plus a charge for GST. This means Air BnB will collect $1150 in total from the person renting your property.
When remitting funds to you, Air BnB will pay you $1085. This is the amount of $1000 total rental income, plus $85. Air BnB will remit the balance, being $65, to the IRD on your behalf, thereby satisfying your GST obligation.
IS THAT MATH CORRECT?
If you’re following the math in this example, you might ask why does the IRD only receive $65 when $150 has been collected in GST? The answer lies in the assumption that’s been made by the IRD.
To revisit our example, it’s assumed the person renting the property is not GST registered because the income they earn from the rental activity falls below the mandatory GST registration level of $60,000 per annum. The legislation surmises, however, that if you were GST registered you could claim the GST on expenses against your income, which would have the effect of reducing the amount of GST payable. The portion you would be able to reduce your GST obligation is deemed to be 6.5% of the 15% GST collected. Therefore, in our example, $65 (6.5/15 * $150) is due to the IRD, and $85 (6.5/15 * $150) is paid to you as the theoretical GST on the expenses you are able to claim.
DIFFICULTIES AHEAD
Where things get complicated is when the person/entity undertaking the activity is GST registered or when the activity pushes them into the GST compulsory registration net eg: they breach the $60,000 annual income threshold. The answer to this knotty issue is to contact your Lion Advisor who will help you navigate your GST obligations.
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