New GST rules for accommodation and transportation services provided by digital platforms

9 September 2022

The Government is proposing GST changes to certain accommodation and transportation services that operate via digital platforms, such as Airbnb, Uber and Uber Eats. 

The changes will result in GST applying to these services, even if the underlying supplier of the services isn’t GST registered.  The move is forecast to raise NZ$47 million of revenue a year for the Government, and may lead to price increases for users of these services or reduced income for the underlying suppliers. 

The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill

Much of the focus of the recently introduced Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill has been on the proposal to impose GST on fees charged by managed funds and KiwiSaver providers. That proposal was removed from a subsequent version of the Bill.  However, the Bill still introduces a similarly substantive proposal: imposing GST on accommodation and transportation services provided through certain digital platforms, and requiring the platform provider (rather than the underlying supplier) to account for the GST. 

The proposal

Digital platforms operate by connecting buyers with suppliers.  The services are supplied to the buyer by the underlying supplier, with the digital platform being an intermediary of the supply through its website or app.

Under current law, whether GST applies depends on whether the underlying supplier is GST registered.  In many cases the underlying suppliers – the owner of holiday accommodation for instance –  might not be GST registered  if the value of what they supply falls below the GST registration threshold of NZ$60,000.   In that case no GST applies. 

The Bill proposes to change this position by extending the existing electronic marketplace GST rules to accommodation and certain transportation services provided in New Zealand, from 1 April 2024.  The Bill proposes that operators of digital platforms will pay GST on supplies of “listed services” made on behalf of the underlying suppliers.  The operator of the digital platform will be treated as supplying the services provided to buyers through their digital platforms, instead of the underlying suppliers. 

“Listed services” are defined in the Bill to include a supply of accommodation services in New Zealand, a supply of transport services in New Zealand in the form of ride-sharing services and beverage and food delivery services, as well as other services that are closely connected with these listed services. 

Large commercial accommodation enterprises which list at least 2,000 nights of accommodation per year through a digital platform are able to enter into written agreements with operators to “opt-out” of the proposed rules.  These large commercial accommodation suppliers would remain responsible for collecting and returning GST on the accommodation services that they provide in the event that they opt out.

The approach follows a similar rule already introduced that imposes GST on overseas suppliers of certain remote services (such as a Netflix subscription) or low-value orders supplied to New Zealand consumers.

The impact on underlying suppliers

GST registered suppliers will not be required to return GST as it will be collected and paid by the operator of the digital platform.  GST registered suppliers will however continue to claim GST on their costs in the usual way (there will be a deemed zero-rated supply by the supplier to the operator of the digital platform, to facilitate continued recovery of GST by the supplier). 

For underlying suppliers who are not GST registered, the operator of the online platform will be required to account for GST at 15% on the relevant services.  These supplies are currently not subject to GST.  Underlying suppliers who are not GST registered have two options to mitigate the cost of this new GST:

  • They can voluntarily register for GST, in which case they can recover GST on their costs; or
  • They can remain unregistered, but obtain some relief through what is described as the “flat-rate credit scheme”.

If the flat-rate credit scheme is applied, GST is technically charged at 15%, however the operator of the digital platform would pay 6.5% to Inland Revenue and must pay the remaining 8.5% to the underlying supplier.  The effect of this arrangement is that GST is effectively paid on a deemed net profit to the underlying supplier of approximately 44% of the fee for the relevant service.

A divergent approach

Previous submissions on the proposal (at the discussion document stage) argued that imposing GST as proposed would be inconsistent with the approach taken in other jurisdictions, where the focus was on implementing the OECD’s information reporting and exchange framework and using the information obtained to enforce existing GST rules.  New Zealand appears to be carving a somewhat independent path by imposing GST on digital platform providers, although other countries such as Canada have already imposed GST on short-stay accommodation services.

Underlying suppliers who are below the NZ$60,000 GST registration threshold are not subject to GST under current law.  The proposal to impose GST on listed services, regardless of the registration status of the underlying supplier, creates a distinction between unregistered suppliers who provide listed services through digital platforms (who will become subject to GST) and unregistered suppliers who provide those types of services directly to buyers (who remain not subject to GST). 

The Regulatory Impact Statement: Taxation of the gig and sharing economy: GST (RIS) justifies the imposition of GST on unregistered underlying suppliers on the basis that, looked at collectively, operators of digital platforms facilitate considerable economic activity and are well placed to account for GST on supplies made their platforms.  GST is not required to be paid when a supplier is under the NZ$60,000 threshold due to compliance cost concerns, and the argument is that those concerns do not apply when the GST is imposed on the digital platform operator rather than underlying suppliers.  The proposal collects GST and insulates unregistered suppliers from GST compliance.  However, the proposal departs from the business model utilised by digital platforms whereby it is the underlying suppliers who supply goods and services to buyers, not the digital platform itself.  Supplying through a digital platform will effectively result in the underlying supplier being denied the benefit of the concession offered by the NZ$60,000 threshold. 

The impact on consumers

The RIS assumes that as the GST “will be passed on fully to consumers”, a consequence is that the “cost to consumers of purchases made through such digital platforms will increase by up to 15%.” 

The cost of services acquired through the likes of Airbnb, Uber and Uber Eats may therefore increase due to the proposal.  The introduction of such a proposal in a period of high inflation may be a focus in future debate on the Bill. 

Platform operators will also have potential costs involved in adapting their systems to accommodate these changes – such as facilitating the repayment of the flat-rate credit and identifying which users are GST registered or not.  It is possible those costs may also be passed on to consumers, further increasing prices.

If you have any questions about the matters raised in the Bill please get in touch with the contacts listed or your usual Bell Gully adviser.


Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.