A Week in Review
Valuing Employer Provided Accommodation
In a previous Commissioner’s Statement (CS 16/02), guidance was provided with respect to methods that IR would accept as being a reasonable basis for determining the market value of employer provided accommodation to employees. The provision of such a benefit to an employee, falls within the definition of being a PAYE income payment in accordance with s.RD 3(1)(a)(i) of the Income Tax Act 2007 (included as part of a person’s salary or wages – s.RD 5(8)), and consequently the value determined will be subject to PAYE deductions.
CS 16/02 establishes that the starting point for determining the taxable value of all employer provided accommodation, is the market rental value of the particular accommodation, and in this regard, it was considered acceptable to use an estimate based on the use of comparable property data contained on internet sites that advertise rental properties, such as Trade Me, to compute the taxable amount from which PAYE was required to be deducted.
While CS 16/02 was issued on 24th November 2016, applying to periods commencing on or after 1st April 2015, recently released is a more narrowly focussed CS 18/02, which deals with the subject of employees of boarding schools. CS 18/02 has been issued to recognise that the market value of employer provided accommodation in these circumstances, particularly where that accommodation is provided on-site, is likely to be subject to a reduced valuation to comparable off-site accommodation, however that this discount may not be readily quantifiable by the employer. The Commissioner is looking to aid the employer therefore, by quantifying the level of discount that may be applied by an employer once they have determined the comparable off-site market rental value of their type of accommodation. The discount ranges from 20% where the accommodation is within the school grounds but separate from the school with direct off-site access, to 50% where the accommodation is embedded within the student accommodation (should be at least 100% in my view!).
CS 18/02 has the same application dates as CS 16/02.
Re-Issued IS 17/03
You may recall in last week’s edition, I commented on the issue of QB 18/14, which dealt with the subject of fees charged by suppliers to customers using their debit or credit cards to pay for a supply, and whether this component of the supply, the fee, should be subject to GST.
Within the QB 18/14 commentary, IR referred to an example previously provided in IS 17/03 (Goods & Services Tax – single supply or multiple supplies), that suggested that a credit card surcharge would always be a separate supply, being an exempt supply of financial services. It was now considered however, that the example provided could be confusing and may not actually be the correct position in lieu of the reasoning outlined in QB 18/14 with regard to the various fees charged by suppliers, and consequently it was stated that IS 17/03 would be re-issued to correct and clarify the IS 17/03 example, and that such surcharges would not always be an exempt supply of financial services.
The re-issued commentary is contained in IS 18/04.
Repatriating Human Body Remains
Yes, you have read the heading correctly, and to end this edition on a somewhat morbid note, somebody has actually asked IR the question, of what is the correct treatment from a GST perspective in relation to goods and/or services provided by a NZ supplier to repatriate human remains located overseas back to NZ.
Draft QWBA PUB00324 considers examples of NZ cremation and embalming services, as well as the exporting of caskets and urns offshore to facilitate the eventual repatriation.
The Commissioner’s initial published view, is that provided the services are provided to a non-resident who is outside NZ at the time the services are performed, and that the remains themselves will not be received by a third party in NZ (clearly similar to the classic education services example which resulted in a legislative amendment), including a “not reasonably foreseeable” test, then zero-rating should apply to the supply.
The exporting of caskets and urns overseas, should qualify for zero-rating by the supplier.
Interestingly, the item is not as new as one might think, originally published not long post the introduction of GST, as a PIB topic in January 1988.
Deadline comment is 29th October 2018.
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
Mb: +64 21 823 464