New reporting and GST liability proposed for the gig and sharing economy
The New Zealand government recently announced a range of proposed tax changes, including some significant updates to how tax works in the gig and sharing economy. The gig and sharing economy refers to economic activity conducted through digital platforms that connect buyers with sellers offering their skills, assets or labour for hire.
The Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Bill (No. 2) proposes that sellers participating in the gig and sharing economy would have to disclose personal and tax-related information to operators of digital platforms which, in turn, would provide the information to New Zealand Inland Revenue. If enacted, the measures would apply as from 1 January 2024.
The proposed rules would apply to sellers that use digital platforms that facilitate supplies of short-stay accommodation, personal services (including any time or task-based work, such as ride-sharing, food and beverage delivery, and graphic and web design services), the sale of goods and vehicle rentals. This bill would implement the OECD’s information sharing and reporting requirements on digital platforms. The OECD released model rules in 2020 that require digital platforms to collect information on income derived from the sale of goods and the offering of accommodation, transport and personal services via digital platforms and provide that information to the tax authorities.
The bill also proposes changes to the Goods and Services Tax (GST) to level the playing field, reduce noncompliance and shift the GST burden to the digital platform provider, irrespective of the sellers’ GST registration status (for prior coverage, see the article in the October 2022 issue of Indirect Tax News).
Overview of proposed changes
New Zealand-based platform operators that facilitate the above services would be required to perform due diligence and collect information about sellers using their platforms, and this information would then have to be reported to Inland Revenue. To the extent the information related to New Zealand tax residents, Inland Revenue would use the information for tax administration purposes to ensure that the correct income was included in the sellers’ income tax returns. To the extent the information related to nonresident sellers, it is envisaged that Inland Revenue would share the information with the relevant overseas tax authorities.
Operators would be required to collect information on sellers on their platforms from 1 January 2024 and report the information to Inland Revenue in early 2025.
There would be exemptions for certain sellers, including large hotel operators (that supply at least 2,000 nights of accommodation per year), government entities and entities (including related entities) listed on an established securities market.
Information to be disclosed
Operators would be required to conduct due diligence on sellers that are active on their platforms, and collect the following identifying information about the sellers:
- Date of birth;
- Address; and
- Tax filing number (including jurisdiction that issued the number).
Operators would also be required to consider the seller’s tax residence based on address information provided by the seller. Sellers that provide false or misleading information to the operator, or that do not provide information to the operator after a reasonable period of time, could be liable for a penalty of NZD 1,000.
Proposed GST changes
Operators of digital platforms that facilitate the supply of short-stay accommodation, ride-sharing, food and beverage delivery services, as well as other closely connected services (e.g., cleaning services for short-stay accommodation) would be deemed to be suppliers for GST purposes and thus would be required to collect and remit GST on behalf of sellers that listed on their platforms. These changes would apply to the supply of services on or after 1 April 2024.
Operators would account for the 15% GST on services supplied through their platforms by filing the relevant GST returns with Inland Revenue and paying the GST to the Revenue. Operators would be required to collect sufficient information about sellers listed on their platforms to determine whether a seller is GST-registered. If a seller is not GST-registered, the operator would apply the “flat-rate credit scheme.” As a non-GST-registered seller is not able to claim GST on expenses incurred in providing the services, the flat rate credit scheme effectively would provide the seller with an 8.5% GST credit in recognition of its inability to claim.
Impact on sellers
GST-registered sellers would be deemed to supply services to the operators, and supplies would be deemed to be zero-rated for GST purposes. The sellers could continue to claim input GST on expenses they incur in making supplies of services through the platform. If a GST-registered seller received a flat-rate credit, it would be required to account for the flat-rate credit in its tax return.
Non-GST-registered sellers would not be required to register. The operators would account for GST, claim a credit under the flat-rate credit scheme on their behalf and pay the net-of-GST amount. The net-of-GST amount would take into account GST charged at 15%, adjusted for the 8.5% flat rate credit.
The New Zealand parliament is expected to pass the bill into law by 31 March 2023, with changes and refinements.