Substantial 'Platform Economy' changes proposed
Tax Alert - September 2022
By Robyn Walker
Tax reforms for the “Platform Economy” are one of the most substantial changes included in the Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Bill (the Bill), but if you’re not delivering people or takeaways, or supplying short stay accommodation, do you need to care about these changes? The answer is yes, because these changes are actually significantly wider.
The Bill contains two separate changes, which apply to different parts of the platform economy:
- Extending the existing GST marketplace rules to capture accommodation, ride-sharing, and food and beverage delivery services provided through electronic marketplaces.
- Implementing an information and reporting framework that will require New Zealand-based digital platforms to annually provide Inland Revenue with data about sellers. Platforms that are in scope are any that have sellers in the following sectors:
a. Rental of immovable property (including commercial, short-stay, and visitor accommodation);
b. Personal services (including any time- or task-based work);
c. The sale of goods; and
d. Vehicle rentals.
GST marketplace rules
The proposal to extend and expand existing GST marketplace rules to cover ride-sharing and accommodation will result in a lot more businesses effectively coming within the GST system. Currently, given the GST registration threshold is $60,000 many such businesses are not registered for GST; many of which can probably be described as a “side hustle” rather than a full-time occupation.
Suppliers through these marketplaces will not need to register for GST, instead, the platforms they operate through will need to charge, collect and remit GST in relation to these services. In recognition that GST should in effect only apply to the “value added” by the seller, there will be a notional “input tax credit” allowed for 8.5% of the value of the supply, meaning in effect that GST applies to 6.5% of the value of the services provided. The marketplace will be expected to pass the credit onto the underlying supplier (presumably as a deduction from commission charges). If a supplier is already registered for GST they will not get the additional credit, but instead will continue to claim GST input tax credits in relation to the costs of making taxable supplies.
The manner in which the GST obligations have been placed on the marketplace means that many ride-sharing or accommodation suppliers won’t need to give GST any additional consideration if they remain below the GST registration threshold – however at some point consideration will need to be given to who will effectively bear the cost of the addition of GST – will it be passed onto the consumer or absorbed by the supplier? The recent debate on GST suggests most expect increases to be passed onto consumers.
The new rules will apply from 1 April 2024, allowing about 12 months for systems and processes to be developed once the rules are exacted (expected to be in March 2023).
While most attention has been directed toward the application of GST, the Bill contains new provisions requiring the provision of substantial data to Inland Revenue by platforms. While this may seem innocuous, in fact it will have a profound effect on any platform caught within its ambit, with substantial penalties on the line if there is non-compliance (by either the platform or its sellers).
Ultimately there is a significant cost to businesses in having to collect, collate and provide extensive data sets to Inland Revenue. The purpose of the provision of the data is to give Inland Revenue visibility over the income earned by individuals/businesses operating through these platforms, both in New Zealand and overseas. The data collected about non-residents will then be shared under reciprocal data-sharing arrangements with other revenue authorities (so if you’re trading through offshore marketplaces, your worldwide income will soon be visible to Inland Revenue).
So who is caught by these rules? This is where it becomes a little less clear. Rather than designing and implementing rules for New Zealand, our tax legislation is being updated to simply refer to two sets of OECD model rules… which amount to 59 pages of technical guidance. As a starting point, the OECD defines a “platform” extremely widely: “A Platform means any software, including a website or a part thereof and application, including mobile application, accessible by users and allowing Sellers to be connected to other users for the provision of Relevant Services, directly or indirectly, to such users. The operations of the Platform may also include the collection and payment of Consideration in respect of Relevant Services. The term Platform does not include software exclusively allowing the: (a) processing of payments in relation to Relevant Services; (b) listing or advertising the Relevant Services; or (c) redirecting or transferring of users to a Platform without any further intervention in the provision of Relevant Services.” A Relevant Service is the rental of immovable property; personal services, the rental of a means of transportation, or the sale of goods for consideration.
The reporting requirements will vary depending on the type of relevant service being provided, but in essence will be details about all sellers (including IRD numbers or foreign equivalents) and details of all sales made and any fees, commissions or taxes withheld. For property, information will also need to be supplied on the number of days a property was rented.
Information reporting requirements will apply annually and will start from 1 January 2024, meaning that the first set of reporting will be due in early 2025.
Businesses operating digitally, including through a website, will need to consider whether they will be meeting the definition of a Platform and if they are providing Relevant Services. While there is still some time before the reporting will be required, systems will need to be designed as soon as possible to start capturing the required data. Non-compliance with the requirements will result in civil penalties, which could be as much as $100,000 in a year. Sellers who fail to supply necessary data to Platforms will also be liable for a $1,000 penalty.
If you think your business could be caught by these rules, please get in touch with your usual Deloitte advisor to understand more about these proposals.
September 2022 - Tax Alerts
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- Insights from Inland Revenue’s International Questionnaire campaign. Are you in the expected normal range?