Chapter 5 – Other measures to reduce compliance costs
- Standard costs for those who earn income through the gig and sharing economy
- Accounting for private use of assets used in the gig and sharing economy
5.1 The Government is also interested in whether there are other changes that should be made to the tax system to reduce compliance costs associated with earning incomes and complying with tax obligations through the gig and sharing economy. For example, for sellers on ridesharing platforms, are there improvements that could be made to the rules for determining motor vehicle expenditure for income tax and GST purposes? For sellers on platforms that facilitate short-stay accommodation, are there changes that would be desirable from a compliance costs perspective?
5.2 There are a number of areas where changes to the tax system could be made to reduce compliance costs in the gig and sharing economy. Submitters views are welcome in this area along with any other initiatives that submitters consider beneficial.
Standard costs for those who earn income through the gig and sharing economy
5.3 One of the options available would be to introduce new standard costs for those who earn income through the gig and sharing economy. This would involve the Commissioner of Inland Revenue being responsible for setting standard cost deductions so that taxpayers who did not want to keep actual expenditure records could claim a deduction that was calculated with reference to averages across the industry.
5.4 Inland Revenue determines annually standard costs for those providing home-based boarding services. If a person chooses to apply these standard costs in determining their tax obligations with respect to their home-based boarding services, as long as the income they receive is below the annually determined amount, the person does not need to declare this income (or expenditure) to Inland Revenue in their income tax return. A person who chooses this method will not be able to claim a loss.
5.5 It is expected that the individual income-earning circumstances of each seller through digital platforms in the gig and sharing economy could differ quite substantially. Each seller could have completely different cost profiles (for example, a ridesharing seller who leases their vehicle to other drivers will have different costs to a person who pays to lease a vehicle; and a person who does not have a mortgage for a property they use in their short-stay accommodation activities will have different costs to someone who does). This would make it difficult for Inland Revenue to determine standard costs that catered for these variations. The determinations would therefore be unlikely to be a representative proxy for the actual costs incurred.
5.6 The Government is interested in submitters’ views in this area, and, whether standard costs could be determined in a sensible manner.
Accounting for private use of assets used in the gig and sharing economy
5.7 If a seller on a digital platform in the gig and sharing economy platform becomes registered for GST to recover GST deductions, this will raise issues of how they should account for GST for an asset such as a holiday home or a ridesharing vehicle which would now be used to make both taxable supplies and for private use. The apportionment and adjustment rules apply when a GST-registered person uses (or intends to use) goods and services for both taxable and non-taxable purposes. Following acquisition of an asset, the GST-registered person must annually compare the intended taxable use of an asset with the actual taxable use of an asset and apportion accordingly.
5.8 The current GST apportionment and adjustment rules which apply to such assets are complex and have high compliance costs as they require monitoring of the percentage of taxable use and annual adjustments. Imposing these rules on thousands of sellers in the gig and sharing economy who may have otherwise relatively simple tax affairs and may only participate temporarily in a taxable activity would exacerbate existing issues with tax compliance and compliance costs.
Svenja owns a beachside property that she rents out on a digital platform called ‘book-a-crib.’ Svenja usually only rents her place out for a couple of months of the year (the rest of the time it is used for her private use), and she has never previously registered for GST. This means that Svenja is not required to charge GST on the fees she charges for accommodation, but also means Svenja cannot claim GST deductions for her costs such as cleaning, power, internet along with rates and interest payments.
If extended marketplace rules were implemented, the supply of accommodation would be subject to GST and ‘book-a-crib’ would be required to pay 15% of the short-term accommodation hire to Inland Revenue. To avoid over-taxation, Svenja should be able to claim back the GST component of the costs she incurred in providing short term accommodation. This means she would also be required to apply GST apportionment rules to account for her taxable and non-taxable use of the asset for these costs.
5.9 We are therefore interested in any specific considerations that may apply for apportionment and adjustment in the sharing economy context that could help lead to a reduction of compliance costs for sellers on digital platforms in the gig and sharing economy.
5.10 Inland Revenue officials are currently consulting on options to simplify the GST apportionment and adjustment rules, set out in the officials’ issues paper GST apportionment and adjustment rules. The proposed options would significantly reduce the number of registered persons who face compliance costs and unexpected liabilities under the current rules. The proposed options could be applied to holiday homes and ridesharing vehicles to help mitigate some of the compliance costs which would arise if sharing economy sellers were required to register for GST to claim GST deductions.
5.11 Because most owners of holiday homes are not currently registered for GST, they are unable to claim GST deductions for these properties and are not liable charge GST on the properties if they sell them. To maintain this treatment, it is proposed that GST registered owners of holiday homes would be able to elect to exclude their purchase and disposal of the holiday home from being considered part of their taxable activity (even if it is partly used to make taxable supplies of short-term guest accommodation services).
5.12 This means if an owner of a holiday house registers for GST, they would usually choose to not claim a GST deduction for purchasing the holiday home or on capital spending on the house. GST would then not apply to any subsequent sale or disposal of the holiday home. However, the GST registered person would still claim GST deductions on operating expenses (cleaning, property managers, rates and insurance, repairs to the extent these costs are incurred in supplying short term accommodation services). Owners would not need to return GST on the income they received as this would be done by the digital platform.
5.13 Another option could be to introduce a special rule which would prevent GST deductions from being claimed for the purchase of a holiday home (and any capital improvements) unless the registered person made at least $60,000 of supplies to guests (ignoring supplies made to associated persons such as the owners or close family members as this is more akin to private consumption rather than a commercial activity). Such a rule would only allow GST to be deducted on the land and capital of a holiday home when the holiday home operates on a similar scale to other commercial accommodation operators such as hotels or motels which would typically have more than $60,000 of supplies to guests.
5.14 In any case where a GST registered guest accommodation host had claimed a GST deduction for buying their holiday house, they would be liable for GST if they sold the house or stopped their taxable activity of selling guest accommodation. However, it is also proposed that if a GST registered person did not choose to claim a GST deduction for an asset, such as a holiday house, they would not be subject to output tax on disposal of that asset.
5.15 Most ridesharing vehicles are dominantly used to make taxable supplies, with occasional private use. To reduce compliance costs of apportioning GST deductions on the purchase of a vehicle by a registered person, it is proposed that if the vehicle is 80 percent or more used to make taxable supplies (based on mileage), then this could be rounded-up to a deemed 100 percent taxable use. This would mean a full GST deduction could be claimed on the purchase of the vehicle and the GST apportionment rules would not apply as long as the taxable use remained above 80 percent (and if the taxable use dropped below 80 percent, apportionment adjustments would then be required).
5.16 Many of the ridesharing vehicles would have been purchased prior to the driver becoming registered for GST. Under the current apportionment rules, a registered person needs to have had 100 percent taxable use of an asset at the end of two of their annual balance dates to perform a wash-up calculation to claim a full deduction of the GST incurred on the purchase price. It is proposed that the wash-up calculation be amended so it can be applied at the end of the current adjustment period if there has been a permanent change in use. If this proposal proceeds, a GST registered driver would be able to claim a GST deduction for the GST they incurred when they purchased the vehicle at the end of their first adjustment period (their next balance date) after they become registered.
5.17 In any case where a GST registered driver claimed a GST deduction for their taxable use of the vehicle, they would need to account for GST if they sold the vehicle or stopped their taxable activity of ridesharing. However, it is also proposed that if a GST registered person chose to not claim a GST deduction for an asset such as a vehicle, they would not need to account for GST on disposal of that asset.
5.18 It is also proposed that if a GST registered person had less than 20 percent taxable use of their vehicle (for example because they use it privately and only operate as a ridesharing driver on Friday and Saturday nights) that the taxable use of the vehicle could be deemed to be 0 percent. This would mean they would be unable to claim any GST deductions, but would also not be liable to account for GST if they sold the vehicle or stopped their taxable activity of ridesharing.
5.19 It is proposed the above rounding rules would only apply to capital spending. This means that GST on operating expenses such as petrol, insurance, repairs and maintenance, and vehicle licencing could only be deducted to the extent they were used to make taxable supplies (generally apportioned based on mileage).
Question for submitters
- Are there other options that the Government should consider implementing to make it simpler for those with tax obligations as a result of earning income through the gig and sharing economy to comply?