Changes to GST for the platform economy

In March 2023, legislation in relation to the platform economy was passed, affecting the GST treatment of services made through an electronic marketplace from 1 April 2024. We saw something similar back in 2019, where the GST rules on imported goods were amended to treat operators of online marketplaces as liable for returning GST, as opposed to individual sellers. Now the rules are being expanded to include listed services, such as accommodation, ride-sharing services and food delivery services.

Previously, large market operators like Airbnb or Uber were not liable for returning GST on services that were supplied through their platform. Instead, the underlying supplier of the services (the home owner or driver) would only have to register for and return GST if their taxable supplies exceeded $60k per annum.

In order to ensure fairness with other operators in the economy, from 1 April 2024, the rules have changed to treat the market operators of these listed services as the supplier for GST purposes. For example, when someone books a holiday home through one of these suppliers, the market operator (the one facilitating the supply of the service) is liable to account for GST on the rental price to Inland Revenue. This applies regardless of whether the underlying supplier (the person that owns the accommodation) is registered for GST or not.

Essentially, the market operator will now be left with less cash from each transaction. It is likely that these market operators will either look to increase the listing price to the end consumer or reduce the net proceeds paid to the underlying supplier.

One of the fundamental aspects of the GST system is that GST can be claimed on goods and services acquired for use in making supplies. An underlying supplier that is not GST registered would not be able to do so.

To achieve a similar economic outcome, a flat-rate credit of 8.5% applies. This percentage was determined to be the average value of GST input tax deducted by taxi drivers and holiday home owners and must be taken as a deduction by market operators where the underlying supplier has not notified Inland Revenue that they are GST registered. The market operator must then pass on the credit to the underlying supplier. This has the effect of allowing underlying suppliers a standardised input tax deduction against the GST output tax liability.

There is further devil in the detail that should be worked through on a case-by-case basis, such as how the flat rate credit is treated for income tax purposes and to what extent should income tax deductions be claimed for costs that have a mixed purpose.

These rules are now in effect and should function to promote more equity across the economy, and might explain why the price of some holiday accommodation has just gone up.

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