If you rent out a property on a short-term stay basis via a platform like Airbnb, you will have been contacted recently to disclose your GST registration status to the platform.

This is because from April 1 there is a new regime in place when it comes to the charging and collecting of GST on short-term stay accommodation through platforms like Airbnb.

For the sake of completeness, the same rules also apply to the provision of transport and delivery services via the likes of Uber, but for the purposes of this article I will concentrate on the implications for property owners.

The New Rules

From April 1, 2024, the obligation to charge and pay GST shifts to the platform provider. Moving forward, the likes of Airbnb have to charge, collect and pay GST on all accommodation supplied via their platforms. This is regardless of whether the underlying property owner is registered for GST or not.

Do I Have To Register?

No, this does not mean that a property owner who so far has not been obligated to be registered for GST, suddenly has to register for GST.

Whether or not a property owner has a mandatory obligation to register for GST will continue to depend on whether gross turnover from taxable supplies exceeds $60,000 per annum. If gross turnover from short-term rent is below the $60,000 threshold, you can continue to choose not to be registered for GST.

Note this is not a property-by-property test. If you own two properties that are both generating $40,000 in gross short-term rental income, then you are obligated to be registered because that’s $80,000, which is more than the threshold.

Disadvantages?

No, you will not necessarily be at a disadvantage if not registered for GST. The platform provider will pay you some of the GST collected, and if the market price shifts upwards due to the application of GST, you will get part of the increase. For example, let’s say you have a property rented out at $230 a night via Airbnb. This will include $30 of GST, that you would expect Airbnb pay to the IRD.

However, they will pay $17 (being an amount based on 8.5 per cent of the $200 value of the supply) to a non-registered property owner as what is known as a “flat-rate credit”. Therefore, a non-registered owner gets $217 of the $230 (excluding any fees from Airbnb and ignoring cleaning and other costs and services).

Tax On $17 Flat-Rate Credit?

The $17 flat-rate credit is not taxable income. The catch is that a full deduction cannot be claimed for the GST inclusive costs associated with the short-term stay activity. For example, if you spend $2,300 on property insurance, up until now you would have claimed a deduction for income tax purposes as a non-GST registered owner on the GST inclusive cost of $2,300. Under the flat-rate credit scheme, your deduction for income tax purposes is based on the GST exclusive amount. With GST at 15 per cent the calculation is $2,300/1.15 = $2,000. (You claim $2000, not $2,300 for income tax).

The main takeaway point is these rules are going to add complexity to the affairs of a non-GST registered property owner.

The Implications

GST-registered property owners will cease to pay GST on their income, because Airbnb will be paying it on their behalf. In my example where Airbnb charges $230 per night, including $30 of GST which is paid to the IRD, a GST-registered property owner gets the net $200 and returns that as “zero-rated” revenue. This means no GST is paid on the $200 net receipt. A GST-registered property owner continues to claim GST on expenses incurred in the normal manner.

Other Complications?

Of course there are. If you rent out your property directly as well as having it listed on a platform like Airbnb, then you are subject to a hybrid of the new and existing rules. If you are registered for GST, you would need to collect and pay GST on the rent you receive directly versus treating the income from Airbnb as zero-rated supply as noted.

Advice Tips

What do you do if you are a property owner renting out a property short-term? Get advice. Not only do you need to know how these new rules may impact your rental activity, it would also be an opportune time to review if you should be GST registered in relation to the property activity.

This is not always a straightforward question. Generally speaking, our clients are reluctant to be registered for GST, knowing that it means there is a contingent GST liability that will come home to roost when the property sells.

This is because you pay GST back on cost plus any capital gains. However, there are other considerations, such as whether the benefit of claiming GST in the short-term and having the use of that money outweighs the downside of paying GST on the capital gains. This is a discussion I am having increasingly with clients.

In summary, we find the new rules unnecessarily complicated and hardly in the spirit of reducing compliance costs. Take advice and make sure you adjust your accounting system for the new rules.

To keep updated on tax changes such as this, keep an eye on GRA’s regular blogs at www.gra.co.nz.