Evening the playing field – GST changes coming for holiday accommodation
Tax Alert - November 2022
By Tafadzwa Marerwa & Sarah Kennedy
It can be random good luck as to whether you pay GST when you rent a holiday home under the current GST rules. It all depends on whether the owner of the accommodation is GST registered or not. However, from 1 April 2024 this will change as the Government is proposing legislative changes that will mean GST will be payable on short-term accommodation bookings made through online platforms, regardless of whether the owner of the property is GST registered or not. GST is proposed to be charged on short-term stays in New Zealand that are booked through an “electronic marketplace” (as defined) and will include the nightly rental fee as well as other “closely related services”, such as cleaning and booking fees.
You occasionally rent out your holiday home, but you are not GST registered, what will these changes mean for you?
Under the proposed laws, if you advertise your holiday home for rent on an online platform for short-stay accommodation, the platform will charge GST on the nightly rental (and any other fees charged) on each booking made on or after 1 April 2024. This will apply even if your total supplies of accommodation are under the current GST registration threshold of $60,000 per year.
The GST will be collected and paid to the Inland Revenue directly by the platform without you having to register for or file GST returns. As you are not GST registered you won’t be able to claim any GST input tax credits for expenses incurred, like you would if you were filing your own GST returns. Instead, the platform will provide you with a “flat-rate credit” of 8.5%. This is a fixed amount that Inland Revenue has determined as generally matching the level of GST on expenses that a short-stay accommodation provider has. The new rules mean that Inland Revenue receives a net 6.5% of the GST charged to your guests. The platform will be the party that must claim the 8.5% credit from Inland Revenue, and the platform can only make this claim if the platform passes the 8.5% credit back to you as the non-GST registered owner of the property.
While the supplies of the accommodation and other related services will be subject to GST, these rules do not bring the property itself into the GST net. This means that you will not be required to charge or return GST on any future sale of the holiday home.
Should I register for GST myself?
You need to consider how the introduction of GST will impact your pricing. Should you increase your nightly rate, or will you bear the GST cost? If you are expecting to undertake any major renovations or have a large number of business expenses relating to the rental property, voluntarily registering for GST might make more economic sense than relying on the fixed 8.5% credit. But it is important to remember that claiming input tax credits on costs in relation to property improvements will also mean that the property is subject to GST if it is ever sold, or you change the use of the property. If you do register, then the rules in the next section will apply to you.
As the proposed rules are currently drafted, if you exceed $60,000 of supplies (even if all supplies are made through a platform) you will still be required to register for GST.
You are already GST-registered – what will the changes mean for you?
Online platforms will charge your guests 15% on the nightly rental (and any other fees charged) in the same way that they will for non-GST registered owners. As the GST output tax is being returned directly by the platform, you must treat that income as a zero-rated supply in your own GST return.
You will continue to claim the GST input tax credits on actual expenses through your GST returns as normal. This means that your GST returns may be in a refund position and you may wish to consider filing more frequently to access refunds quicker. You will need to tell the platform that you are GST registered so they know that you don’t receive the 8.5% flat-rate credit. Make sure you check your remittance information from the platform carefully, if you do receive it, Inland Revenue will expect you to repay the full amount received and may charge penalties.
There is a limited ability to opt-out of the rules and return the GST yourself, but this is restricted to suppliers who are listing more than 2,000 accommodation nights on a platform (this opt-out is designed for large commercial operators, not small-scale owners).
Any future sale of the property is treated in the same way it is currently, i.e. it will either be a zero-rated sale if it is to a GST registered person or subject to GST at 15% if the property is sold to a non-registered person.
But I don’t want my property caught by GST when I sell!
In addition to the changes for GST through platforms, the government is amending the GST rules to provide GST registered owners an opportunity to take their existing property out of the GST net.
From 1 April 2023, Inland Revenue is proposing to allow GST registered suppliers who have not claimed a GST input tax credit on the purchase of a property to elect to treat the sale of certain assets that were acquired predominately for private or exempt use, as exempt. This election may be attractive for people whose main purpose was personal use and who only rented out their properties for a few months in the year. Currently, the proposed election is restricted to people who did not acquire or use the property with the principal purpose of making taxable supplies i.e. the principal purpose was personal use.
There is a financial cost to making this election, which requires you to return any GST inputs claimed in relation to the underlying property.
If the property was zero-rated at purchase, the nominal amount of GST that would have been charged to you by the vendor if you were not GST registered should also be returned. This election and payment must be completed within the transitional period of 24 months, from 1 April 2023 to 1 April 2025.
I haven’t bought a property yet – what do I need to think about?
If your property is purchased after 1 April 2023, you will need to consider whether you want to be GST registered. Being GST registered does allow you to claim GST on all related expenses incurred; however, it also means that you will be subject to GST on sale of the underlying property (unless your principal purpose is non-business use and you have made the election described above, before 1 April 2025). If you do have a principal purpose of private use, you can keep the asset out of the GST net on sale by not claiming any input tax deductions in relation to the property and making the election as discussed above. The sale of the underlying property would be an exempt supply when sold.
If you require further information on the matter, or you require advice on how these rules will apply to your specific situation please contact your usual Deloitte adviser.