Beat The App Tax

GST on apps such as Airbnb, Uber, Ola, Uber Eats etc has always been an area that has caused immense confusion. Luckily for us, this confusion has got worse with the introduction of a piece of legislation nicknamed “The App Tax”.

Let’s try figure this out together.

In my attempt to explain this, I am going to provide 2 examples. The first is Adam who Airbnb’s his sleepout and earns less than $60k per year and therefore is not GST registered. The second is Hannah who Airbnb’s her whole house and earns over $60k per year, therefore meaning she is GST registered.

Explanations below have been simplified for the sake of understanding. This is not tax advice and it is advisable to seek specific tax advice for your own situation.

In very simplified terms, the app tax shifts the responsibility of returning GST from Adam and Hannah, to Airbnb itself. Airbnb is now required to return 15% of all sales it makes through its platform. Airbnb will charge GST on all it’s transactions, and claim GST on all its expenses, just like most New Zealand businesses.

Now what about Adam and Hannah?

Adam is not GST registered and under the new law, will still not be required to register for GST. However, there are some changes to Adam’s tax return, these are summarised below:

• Adam will now use GST exclusive amounts for income and expenses.

• He will now receive an 8.5% “Flat-rate credit” which is essentially reimbursing him for not being able to deduct the GST portion of his expenses anymore.

• This flat-rate credit is excluded income i.e. not taxable.

• Adam will likely be worse off cash wise because Airbnb will pass on less income (no GST) and he still pays GST on the goods he his purchasing. It is unlikely the flat-rate credit will cover this gap.

• Adam may need to increase his prices by 2%-5% to ensure he is not worse off than before.

Hannah will remain GST registered as she was before, however she will also experience some changes:

• Hannah’s income will be zero-rated i.e. will not need to pass on GST on her sales. Her sales will now be returned as zero-rated to IRD.

• She will continue to claim GST on expenses.

• Therefore, with no GST on sales, but GST on expenses, she will always get GST refunds.

• This seems great; however she is in no better position than before because she is no longer receiving GST from Airbnb which she previously passed on to IRD.

• Hannah will not receive the flat-rate credit.

If you are in either Hannah or Adam’s shoes, here are some actions you may want to take:

• Let Airbnb know your IRD and GST registration. Airbnb will only pass on the credit to those who have informed them they are not GST registered.

• Do not incorrectly claim the flat-rate credit if you are not entitled to it. IRD have made it clear there are large penalties for those who incorrectly do this. If you do incorrectly receive this, make a debit adjustment, and inform Airbnb you are GST registered so they no longer pass this on.

• Do some workings to see how your cash position is impacted. Make sure you increase your prices by enough to cover your individual shortfall. Contact us if you need help doing this.

• Review your bookings and see if they are impacted, or if they fall under the IRD’s ‘transitional rules’.

These rules can seem overwhelming but hopefully the above has made these changes a little less confusing.

These situations similarly apply to Uber drivers and Uber Eats delivery drivers, as well as the other companies who provide these types of services.

If you need help with getting a handle on your exact situation, please get in touch and we can figure out a plan together.