New legislation, commonly known as the “App Tax”, has been passed providing specific GST rules around the use of marketplace services such as Airbnb. These came into effect from 1 April 2024.
Who is affected by the new ‘App’ Tax rules?
If you have “listed services” through an electronic marketplace these will be subject to this GST, regardless of whether you are GST-registered. This includes the supply of short-term accommodation in New Zealand (long term rental is GST-exempt)
From 1 April 2024, marketplace operators (such as Airbnb and Bachcare) are required to collect and return GST at the standard rate of 15% on accommodation provided through them, even if you earn under $60,000 rental income annually and are not GST-registered.
For those who aren’t GST registered – Marketplace operators will collect the GST at the standard rate of 15%. They will pay 6.5% to the IRD and 8.5% to you; this flat-rate credit is designed to cover the GST that would have been claimable on the property’s expenses. Under this scenario, you cannot claim GST on expenditure related to the property. The GST portion is considered a non-deductible expense.
Example where you are not GST registered – Prior to April 2024 if you rented your property on marketplace for $230, you would receive all the $230 income. Under the new rules, the GST of $30 will be collected and you will receive $17 ($217) and the IRD receives $13.
Overall, your income will reduce around 6% and therefore you may wish to alter your pricing.
Key take aways – not GST registered:
- Effected from 1st April 2024
- Short term accommodation only
- Not a requirement to become GST Registered
- Marketplace will manage the GST Payment to the IRD
- Do not change your GST status without talking to an accountant as your house may get caught up in the GST net, which may have consequences when you sell.
For those who are already GST-registered –The marketplace operator will collect and return the GST to the IRD on the rental charged to guests. You will receive the rental income net of GST and will need to return this as a zero-related supply. Under this scenario you can continue to claim GST input credits on your property expenses.
You are responsible for advising your marketplace provider of your GST registration status, so that you are not paid the 8.5% flat-rate credit. Should you receive a flat-rate credit incorrectly you are required to pay this back to the IRD.
Key Take aways – already GST registered.
- Tell Marketplace that you are registered for GST
- Provide them your GST details.
- You will receive the rental income net of GST.
- Return Income as a zero-related supply.
- Marketplace are making the GST payment on your behalf.
- Continue to file GST returns with your expense claims, if you don’t have any other business activity, you are likely to receive refunds.
Frequently Asked Questions
Will I be disadvantaged if I’m not GST Registered?
No not necessarily as the platform provider will pay you back some of the GST collected, i.e. 8.5% as a flat rate credit. This credit is exempt income.
What about the GST on expenses?
If you are registered for GST, you can continue to claim GST on your expenses.
If you are not GST registered, you will only be able to claim the GST exclusive price for income tax purposes therefore you will need to remove the GST element from your expenses. Also use the GST exclusive price for your income to determine your net profit.
What about when I rent out my property through marketplace and directly?
If you are not GST registered, and you rent out your property directly as well as having this listed through a platform like Airbnb, then you are subject to a combination of the new rules and the previous rules. You will need to adjust the GST on expenses based on the percentage of income that is received directly, versus the income received through the Airbnb platform.
If you are GST registered you will need to separate out the income you receive directly and return GST to the IRD, the income received from Airbnb will be treated as exempt income in your GST return.
Should I register for GST?
This will depend on individual circumstances, and we recommend getting accounting advice before you register for GST. Generally, this means that your property would be subject to GST when you sell it, potentially at a much higher value in the future. If you cease to Airbnb your property, you would need to de-register for GST and return GST on the current market value of the property.
Summary
In summary, there are many complexities to consider around the GST on Airbnb, registration and claiming GST on your property. 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 it sounds complicated it’s because it is, understanding the impact of these new GST rule are very much dependent of your personal situation. Please contact us and we can help explain what it means to you and discuss options that may be of benefit for the future.
If you are a non-client needing help, we are there for you too. We always offer an initial free meeting.
For more information reach out to Natasha Waters, Chartered Accountant.
