Bed & Breakfast AssociationOn 1 April 2024, New Zealand is set to implement a new tax law that will have significant consequences for small businesses that are taking bookings through online platforms such as Booking.com, Airbnb, Expedia and Uber. Referred to as the ‘App tax’, this legislation aims to regulate and tax online accommodation platforms and booking services, requiring them to pay GST on all bookings that are placed through their platforms.
For our B&B sector, the App tax will affect properties that market through online platforms such as Airbnb, Booking.com and others. It requires these platforms to collect and remit GST (Goods and Services Tax) on behalf of hosts for their rental income. This move is seen as a measure to level the playing field between traditional accommodation providers, who have long been subject to GST obligations, and their online counterparts.
Much of what IRD requires is already known, however the impact of exactly how it will affect us is still being worked through. This is because the detail of how the GST will be handled by the App platforms is not yet known, especially how it may affect businesses that are already GST registered. That is all businesses with annual sales of over $60,000 and those under $60,000 that have chosen to register.
Businesses that are not GST registered will have their GST remitted to IRD by the online platforms that have placed customers with them. This will likely be taken from payments that are made to them by the Apps or remitted via adjustments to commission invoices. Generally, it will apply to all accommodation services booked, invoiced and paid for post 1 April. However, there are some questions about liability for accommodation provided post 1 April where payment or part payment, say a deposit, is taken prior to this date. Talk to your accountant.
The GST amount that the online platform is required to account for on your sale is 15%. However, if you are not registered for GST and therefore not filing expenses, a credit of 8.5% will be remitted back to you in recognition of the expenses incurred in running your business. The online platform will pay IRD 6.5% and so the implication is that you will be getting 6.5% less on bookings that you have already made for stays post 1 April 2024. For your position to remain revenue neutral your price will need to increase. Your online provider may do this for you. However, we don’t yet know for certain, so it may pay to increase the price on your accommodation by at least 6.5% to recover the GST.
The situation for businesses that are GST registered is a lot more complex. The online platforms are required to establish whether you are GST registered or not. Most online providers require this information at time of listing. They will remit GST returns on bookings for the value of accommodation made through their platforms, unless you opt out. Businesses that turn over more than $500,000 or deliver more than 2000 room nights in a year will be able to unilaterally opt out and it is expected that most will and keep filing as they do now.
Unfortunately, not many of our members will be in this situation. Our interpretation is that businesses that do not qualify for this will only be able to opt out where this is mutually agreed with the online platform. At this stage we don’t know how this will play out because the Apps haven’t told us. We know that if you do not opt out, revenues from bookings made through the online providers will be zero rated – that is, not liable for GST as the online providers will take over this responsibility. You will still claim expenses as you do now. The online provider will pay GST on those revenues.
Identifying revenues that are zero rated will be more difficult than it may sound as we’re not sure that booking or accounting systems are up for doing what is required by IRD, let alone the platforms. Identifying revenues and coding them separately will be required.
It is important to remember it is only revenues that are on bookings made through the Apps that will be subject to the App tax. So revenues for services provided on the booking will need to be filed as they are now by the accommodation provider. I have not seen this discussed anywhere else and I wonder if it has even been thought through. Do services need to be invoiced separately for a business that doesn’t or can’t opt out, as is required now for bookings invoiced to agents by those members working in the trade space? From an earnings and cost perspective, it looks neutral. However, there are real risks of over or under reporting if you code revenues incorrectly. This is all further complicated by the myriad of ways that businesses collect payment or get paid and when this occurs.
Further complicating everything that is discussed above is that the new rules apply to bookings made after 1 April 2024. This is not such a problem for non-GST registered businesses. However, a GST registered business will still be responsible for filing bookings that were made before 1 April that are paid after 1 April. Confused? Document and monitor sales to ensure that the correct deductions and remittances are being made and talk to your accountant.
Opting out is the easy answer for all registered businesses. However, as already stated we do not know how this will play out because only businesses that have revenues over $500,000 can unilaterally do this.
We must stress that it will be important to talk with your accounting professional although they may not yet have all the answers. It will be important to keep abreast of the change as it is rolled out and once again your accountant will be your most valuable resource. It will also be important to keep detailed documents for all revenues that come through the online providers. It is still evolving with some App executives having suggested they may not be able to be compliant by 1 April. The Minister has said no leeway will be given.
The introduction of the App tax in New Zealand represents a significant development in the taxation of online accommodation platforms. While the primary aim is to ensure fair and consistent taxation across the accommodation sector, the implications for small businesses are profound. By staying informed, seeking expert guidance, and proactively addressing tax obligations, small accommodation businesses can effectively adapt to the new regulatory landscape and continue to thrive in the digital economy.
For more detailed information on the App tax and its implications for small accommodation businesses, visit the Inland Revenue Department website at www.ird.govt.nz.