The Tax Bill introduced in August got more than its fair share of attention for all the wrong reasons. The press release by officials highlighted the planned FBT exemption for employer subsidised public transport, which is only expected to provide about $9 million in benefit to employers in terms of reduced FBT collected, but this was largely overlooked by press and commentators.
Unless you have been hiding under a rock you will know that the part of the Bill that caught everyone’s attention was the proposed imposition of 15% GST on fund manager fees. While this was intended to bring some certainty and consistency to the way in which GST is charged by fund managers, which is arguably a good outcome, the modelling suggested that by 2070 this would reduce total Kiwisaver investor funds by approximately $103 billion.
To put it in context, this is only about 4% of the total forecast value of funds invested, but the outrage was such that the proposal was literally gone by lunchtime and the Bill has been reissued without these clauses.
Another part of the Bill which has not received a lot of attention in the media is the changes around the platform economy. 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.
The first of these changes will require the digital platforms to return 15% GST on short stay accommodation, ride-sharing and food and beverage delivery services, even if the supplier of those services is itself GST registered and currently returning GST (these will become zero-rated supplies for the supplier). Suppliers that are GST registered will still be able to claim GST on their costs as they currently do, so there should be minimal overall impact for them, just a new layer of complexity.
Where the suppliers are not GST registered, the digital platform will be able to claim a notional input tax credit of 8.5% on behalf of the supplier meaning that the net GST payable by the platform will be 6.5%.
The platform must then pass on the 8.5% credit to the underlying non-registered supplier as cash. For the large number of taxpayers whose turnover is under $60,000 or who have chosen not to voluntarily register for GST, this will be a big change and represents an overall reduction in return for the supplier which may well be passed on in the form of increased charges to consumers. Inland Revenue estimated this additional cost to consumers to be $47 million per year.
The second change will require New Zealand based digital platforms to collect and report on the identity, residence and sales information for sellers using the platform for the relevant types of supplies.
Where the seller is a New Zealand resident, we expect Inland Revenue will then use that information to check whether the seller has returned that income for tax purposes.
Where the seller is not a New Zealand resident the information will be passed on to the relevant tax authority overseas. While New Zealand resident sellers who use overseas based platforms to sell goods and services are not directly affected by these changes, it is most likely that the platforms will be required to report the equivalent information in the jurisdiction that they are resident and that information will end up in Inland Revenue’s hands in due course.
These proposals, and the many others that are included in the Bill, are open for consultation for the next few weeks. The turnaround on the GST on fund management services shows that public opinion can count, so if you would like to make a submission, or if you just want to know how these changes might affect you, get in touch with your accountant or tax adviser.
