A Week in Review

Annual CPA Australia Conference

During the week, I presented a tax update paper for CPA Australia at their annual conference.
With not much else going on in the world of tax this week, I have dedicated this edition instead to provide a little more detail on some of the issues discussed during the presentation.

Employer Grouping

The recent enactment (or not depending on your view of “time”) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018, has seen the introduction of new PAYE information provision rules, in essence, moving the timing from the existing payment date basis, to a new payday basis (payment dates remain unchanged however).

The new due dates for the provision of the PAYE information, will depend upon which group the employer falls within – being the on-line group (default) or the non-electronic group – the former required to electronically file the details with IR within 2 working days of the relevant payday, and the latter, entitled to maintain use of paper based filing and within 10 working days of the relevant payday.

Membership to the mandatory electronic filing on-line group, is determined by the level of the employers PAYE/ESCT in the previous tax year. Exceed $50,000 in this regard, and from 1st April 2019, you’re filing electronically within 2 working days of payday, unless you obtain an exemption to remain in the non-electronic group. IR may agree in this regard if it can be shown you have limited access to electronic filing systems, you have difficulty using a computer and the like.

There will also be a third group of employers, referred to as the “new group” – those in their first six months of employing. While as a member of this group you can voluntarily elect to file on-line, it will not be until the end of your first six months where IR can determine your level of payments to date, when your selection into either group will be finalised.

Naturally the new rules have their own niceties – special rules for existing IR56 payers, non-payday extra payments etc, and a good starting point for additional information in this regard, is the special report published by IR on 14th May 2018, which you can ascertain direct from the Tax Policy section of IR’s website – http://taxpolicy.ird.govt.nz/news/2018-05-14-four-special-reports-new-tax-legislation-now-available.

Individual Grouping

Making its way through Parliament presently (now at Select Committee stage post 1st reading), is the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill.

“Grouping” appears to be the flavour of the times for IR. The Bill is focused on making tax compliance simpler, particularly for individual taxpayers, where possible eventually removing the need for a person to do anything before their tax assessment for the year is finalised, whether that results in the issue of a refund or tax to pay notice. It is also suggested that eventually the need to file an IR3 income tax return will be phased out.

Individual taxpayers will be grouped into 3 categories, membership to which category determined by the extent of their annual “reporting income”. The recent enactment of the employers and investment income legislation in March this year, not only introduced the new payday reporting rules, but also expanded on the types of income payments (reportable income) that the payers of would be required to provide IR details of on a progressive basis throughout the income year – interest, dividends and royalties the common examples.

Category A individuals would be those who derived solely reportable income (or very little of anything else), to the extent that IR would be satisfied by the income year end, that a complete picture of the taxpayers earnings for the year existed and consequently an automatic assessment could be issued, reflecting either a refund due or tax to pay.

Category B individuals would also derive mostly reportable income, however historically will have shown other income or deduction components in tax positions filed. Consequently IR will not have the same confidence level as with category A individuals to automatic finalise an annual assessment, and will actively seek confirmation from the person of whether there is additional information to provide or that the existing details held are indeed the complete picture of earnings for that income year.

Finally, category C individuals will have minimal reporting income and be required to file on a basis similar to the existing IR 3 system.

It is proposed that IR will commence issuing pre-populated accounts to all individuals (thereby the reference to phasing out IR 3 filing), which depending on the category allocated to the person by IR, may or may not require them to actively correspond with the Revenue before an assessment is finalised.

We will of course know more about the proposed changes and likely format once the Select Committee reports back, which is presently expected by 3rd January 2019.

Airbnb – Overlooked GST?

Looking to gain a return by offering rooms in your home dwelling or residential investment property to Airbnb clientele, then make sure you fully consider the GST aspects of the arrangement before proceeding, avoiding a nasty surprise when Mr IR knocks on your door with an unsuspecting GST assessment.

Most of you will be aware that residential rental is an exempt supply when it comes to any GST considerations, and consequently as the owner of the property you do not have any GST obligations in relation to the amounts received.

Unfortunately this understanding is often applied equally to Airbnb scenarios, where the nature of the accommodation being offered is at first glance, identical to any other supply of a residential dwelling. However there is one key difference with Airbnb, and in essence it often comes down to the short-term nature of the supply, and the fact that the Airbnb clientele will not be occupying the premises as their principal place of residence – one key component of the definition of a “dwelling” contained in the GST legislation.

Since the “dwelling” definition will often not be satisfied, the supply will more than likely fall within the definition of being in a commercial dwelling. In this respect, while the supply of accommodation in any dwelling is specifically an exempt supply (s.14(c) GSTA85) for GST purposes, commercial dwelling supplies are still fully taxable.

As a result, where your Airbnb revenue is expected to exceed the annual compulsory registration threshold of $60,000, you must register and commence paying GST to IR on the amounts received. Worse, once in the GST net, should you at any time decide to cease the Airbnb activity (often without a corresponding disposal of the residential property), you trigger an obligation to pay GST output tax to IR based on the deemed market value of the property at that time.

Naturally there are numerous factors to consider with regard to the Airbnb GST issue, and all I wanted to achieve with this article was to increase awareness of the potential hidden GST trap, so that you are fully informed before taking the leap into the potential lucrative Airbnb marketplace (just stay away from disgruntled Wallaby fans however!).

Happy to provide further specifically tailored advice to your own situation.

Richard Ashby BBus, CA, CPA PARTNER
Em: [email protected] Ph: +64 9 365 5532 Fx: +64 9 309 5260 Mb: +64 21 823 464