IRD examines taxing the gig economy

This article was current at the time of publication.

The New Zealand Inland Revenue Department (IRD) is considering submissions to an approach proposed by the government to bring the gig and sharing economy into line with income tax and GST regimes.

The department in March published a discussion document, The role of digital platforms in the taxation of the gig and sharing economy, which acknowledges a reliance on work in the area by the OECD.

The paper addresses digital platforms such as Uber, Airbnb, and Trade Me that connect buyers with sellers of goods and services through an online marketplace.

It cites a study that predicts the sector will turn over US$455 billion by 2023.

Extending the income tax net

According to the paper, these major new global markets have created a need for all governments to “re-evaluate whether their tax systems remain fit-for-purpose”, as “the gig and sharing economy does not fit neatly within existing tax rules and administration”.

Among the concerns are that sellers will often be PAYE-only and have little familiarity with the additional income tax obligations sales on such platforms impose, as well as inequities in the GST rules that apply to sellers on digital platforms versus traditional channels.

The IRD says it often lacks information on incomes earned by sellers on digital platforms, which could in time jeopardise the tax base.

The government wants to adopt the OECD Pillar Two model rules for domestic implementation of a global minimum tax.

These would require New Zealand-resident platforms to provide tax authorities and sellers with information on sellers’ income earned through the platform for personal services, accommodation rental, sale of goods, and vehicle rentals.

To include income earned on overseas-resident platforms, the OECD rules, if adopted, would commit New Zealand to share information with tax authorities of other countries which have implemented them.

Possible New Zealand-specific amendments include a de minimis exemption for smaller platforms and recognition that some sales (for example, on Trade Me) are of personal items rather than income-earning sales of goods.

The GST options

The paper notes that the government is interested in exploring how GST could apply to the gig and sharing economy. 

There are two main options: lowering the GST registration threshold for sellers on electronic marketplaces to $60,000 and above or extending the rules to make digital platforms liable for collecting the tax.

The IRD does not favour lowering the threshold. 

It says the current threshold “seems to strike the right balance between supporting a GST system with a broad base and not biasing competition between suppliers with different business sizes and structures against compliance and administration costs”.

It wants to make digital platforms responsible.

Under the “extended marketplace” model, this would apply to property rentals such as short-stay accommodation services and the provision of personal services like ridesharing and renting vehicles.

The paper discusses methods by which sellers could claim GST back on expenses, including a flat rate scheme applied by some countries through value-added tax (VAT) systems, mandating GST registration for sellers, and refunding GST on costs as part of the annual income tax return process.  

The IRD has yet to release submissions on the discussion document.

CPA Australia’s view

Elinor Kasapidis, CPA Australia Senior Manager Tax Policy, expects the proposed rules to be adopted and for the IRD to receive ever-increasing volumes of data about online transactions.

“In New Zealand, the IRD’s data-matching and information gathering activities are relatively limited,” Kasapidis says. “In Australia, large volumes of data are regularly collected from a wide range of sources such as insurers, cryptocurrency exchanges, rental bond agencies, and sharing economy platform providers. 

“These are then matched to provide pre-filled information in tax returns or to check compliance.”

She says it’s important to ensure any taxpayer data digital platform providers are required to report to the IRD is accurate, properly matched, correctly classified for tax purposes, and able to be amended.  

“This issue highlights the need to declare all income as required and not to try and hide it from the IRD,” Kasapidis warns.

“It may also mean platform providers have to ask for more details about sellers, with the upside being that the information is automatically matched, meaning less of a headache at tax time.”