The GST “App Tax” is back, but in reality it was never gone – What does this mean for Hotels/Motels/Short Stay Accommodation Providers?
With the formation of the new coalition Government there has been a lot of media attention on what changes are coming, and what policies of the previous Government are being unwound. Both the National Party and Act New Zealand campaigned on a tax policy that included repealing the GST rules for the platform economy (the “App Tax”). However, as a result of coalition negotiations, New Zealand’s new prime minister has verbally confirmed that these would no longer be subject to repeal by the incoming coalition Government. This surprise announcement means that the new rules, that have already been passed in legislation by the previous Government, will go ahead as planned with a commencement date of 1 April 2024. This has significant implications for accommodation businesses operating through booking intermediary platforms.
This means that it is important for all providers of short stay accommodation to understand how the App Tax GST changes in 2024 will impact your business, both directly and indirectly.
From 1 April 2024, the default position for online platforms (e.g. online booking intermediaries) facilitating the supply of short-term accommodation services, including hotels/motels/short stay accommodation, will require the online platform to charge, collect, and remit GST at 15% on the accommodation provided through its platform, and the underlying actual provider of the accommodation will not return any GST to Inland Revenue. Commercial accommodation providers can opt out of these rules and continue to return GST at 15% as they currently do, but certain requirements (discussed below) need to satisfied be first. We expect that many commercial accommodation providers will wish to opt out of the new GST App Tax rules. Other commercial accommodation providers may however be comfortable that their GST systems will be able to deal with the complexities of the new rules and may not wish to opt out.
In essence, the policy intent of the GST App Tax is to bring virtually all supplies of short stay accommodation within the GST system, even if the underlying supplier of the accommodation would not normally be required to register for GST (because they generate under NZ$60,000 per annum of short stay accommodation income) and instead make the online platform the party responsible for paying the GST to Inland Revenue. This is likely to increase the price that guests will be asked to pay for short-term accommodation where the underlying accommodation provider was not required to be GST registered. The increase in the price is likely to be less than 15% due to a new rule for a “flat-rate credit scheme” that will pass on an 8.5% cash amount from the online platform to any underlying accommodation provider that is not registered for GST (this is to compensate them for GST on their underlying costs that cannot be claimed). Inland Revenue grants a GST credit to the online platform for 8.5% flat rate credit that is paid out to the underlying accommodation provider that is not GST registered (likely as a deduction from commission charges), so this does not create any direct additional cost for the platform.
The GST App Tax rules however don’t only apply to unregistered accommodation providers using online platforms, they also apply to GST registered providers using those platforms. As mentioned above the default position is that all the GST at 15% due on the guests’ total payment for accommodation would be returned by the platform (and not returned by the accommodation provider). If that happens then any GST registered accommodation providers are deemed to make a GST zero-rated supply to the platform (and not to the guest). This would mean that a GST registered accommodation provider (who has not opted out) who receives both direct bookings and bookings via an online platform would have a mixture of standard GST payable at 15% supplies (the direct bookings) and GST zero-rated supplies (the online platform bookings). This will potentially increase the complexity of completing their GST returns and potentially create risks of under, or over, returning GST to Inland Revenue.
Further increasing the complexity for the initial period are the timing rules for the GST App Tax. The new rules will apply for all bookings made after 1 April 2024, not to all accommodation provided after 1 April 2024, assuming payment is made at the time of booking. Therefore a GST registered accommodation provider (who has not opted out) under the GST App Tax could face the need to work out if their guest nights after 1 April relate to:
- Bookings made before 1 April 2024 via an online platform or direct bookings made either before or after April 2024, for which the accommodation provider will have to return GST at 15% to Inland Revenue directly, or
- Bookings made after 1 April 2024 via an online platform for which the accommodation provider will be deemed to have made a GST zero-rated supply to the platform provider, and for which the online platform will be returning the GST at 15% directly to Inland Revenue.
Given the above we expect that many GST registered commercial providers of short-stay accommodation will want to opt out of the GST App Tax preserving their current GST collection and remittance processes. The method that we expect that will most commonly be used to opt out applies to GST registered businesses that make more than NZD 500,000 GST taxable supplies in a year. Under this exclusion, all those GST registered businesses need to do is to notify the online platform that they wish to opt out and to continue to return the GST directly at 15% from the accommodation provider to Inland Revenue. There does not need to be agreement between the online platform and the GST registered accommodation provider in those situations for the opt out to apply, it can simply be a unilateral notification by the provider to the online platform.
There is another opt out method available if a business lists over 2,000 room nights annually on a platform. However, this requires agreement with the platform, and at a practical level if you are above this many nights you may well be in excess of NZD 500,000 per annum, allowing for the easier opt out method discussed above.
Regardless of whether a GST registered accommodation provider falls within the GST App Tax, or opts out, they will still be able to claim GST on their expenses in the same manner that they currently do.
All GST registered underlying accommodation providers are required to notify the online platform operators of their GST status. The online platform needs to know the GST status to determine if the online platform is required to pay the 8.5% flat-rate credit to the underlying supplier (which only applies if they are not a GST registered underlying supplier) or not.
If an online platform does incorrectly pays the 8.5% flat rate credit to a GST registered underlying accommodation provider, then GST registered underlying accommodation provider needs to pay the 8.5% directly to Inland Revenue via their GST return.
As shown above, this new area of GST law can be complex and there are a number of issues that are still being worked through. All GST registered accommodation providers need to consider how they wish to interact with any online platforms they utilise for bookings and ensure that the GST systems are in place to deal with these new rules, and April 2024 is not that far away.
This communication offers general advice intended for informational purposes only and is not tailored to your specific circumstances. The information provided should not be considered as professional or personalised advice.
Content provided by Allan Bullot and Sam Hornbrook of Deloitte New Zealand.
Allan Bullot
Partner | Tax
Deloitte
Deloitte Centre, 80 Queen Street, Private Bag 115033, Auckland 1140, New Zealand
D: +64 93030732 | M: +64 21585734 | O: +64 93030700
abullot@deloitte.co.nz | www.deloitte.co.nz
Deloitte means Deloitte Limited (in its own capacity for assurance services, otherwise as trustee for the Deloitte Trading Trust)
Sam Hornbrook
Director | Tax
Deloitte
Deloitte Centre, 80 Queen Street, Private Bag 115033, Auckland 1140, New Zealand
D: +64 9 303 0974 | M: +64 22 189 0867 | O: +64 9 303 0700 | F: +64 9 303 0701
sahornbrook@deloitte.co.nz | www.deloitte.co.nz
Deloitte means Deloitte Limited (in its own capacity for assurance services, otherwise as trustee for the Deloitte Trading Trust)