Tax Updates: 27 May 2024

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Opting out of GST electronic marketplace rules

Inland Revenue (IR) has recently released DET 24/02, titled ‘GST on accommodation supplied through electronic marketplaces—opt-out agreement criteria’.

The determination has application to those suppliers of accommodation services who cannot use the statutory opt-out thresholds, to enter into an opt-out agreement with the operator of an electronic marketplace. In doing so, they remain responsible for their own GST obligations in relation to supplies of taxable accommodation services – that is, continue to include supplies of listed services made through an electronic marketplace in their GST returns as standard-rated supplies, as opposed to zero-rated supplies.

DET 24/02 is targeted at motels and hostels (defined under ordinary meanings), many of whom IR expects will already qualify to enter into opt-out agreements with the electronic marketplace, either because their taxable supplies exceed $500,000 in a 12-month period, or they have more than 2,000 nights of accommodation available on one electronic marketplace in a 12-month period. However, IR acknowledges that some suppliers may not satisfy the statutory criteria, perhaps because they close for the off-season.

In accordance with section 60C(2BC) of the GST Act 1985, IR has the power to make a determination setting out circumstances and criteria a person must meet to enter into an opt-out agreement, regarding:

  • the compliance costs that would arise for underlying suppliers in making changes to their accounting systems and practices; and,
  • the size, scale, and nature of the services and activities undertaken by underlying suppliers.

A motel or hostel will be able to enter into an opt-out agreement with the electronic marketplace if they satisfy all the following criteria:

  • they were registered for GST on or before April 1 2024 and their registration has not subsequently been cancelled;
  • they exceed the $60,000 GST registration threshold in section 51(1) (i.e., they are required to be registered for GST because they made supplies of more than $60,000 for the last 12-months or they expect to make supplies of more than $60,000 for the next 12-months);
  • they do not satisfy the statutory opt-out thresholds in section 60C(2BE) or section 60C(2BF) (i.e., they do not meet the 2,000 nights or $500,000 of taxable supplies thresholds);
  • they supply taxable accommodation services in a hostel or a motel; and,
  • the accommodation includes both accommodation that can be booked through an electronic marketplace and accommodation that can be booked directly with the underlying supplier (this means an underlying supplier that only makes supplies through an electronic marketplace will not be eligible to enter into an opt-out agreement in reliance on the determination).

Having met all of the above, the supplier will also need to ensure:

  • The documentation provided to the recipient of the services identifies the supply as being made by the underlying supplier and not the operator of the electronic marketplace (section 60C(2BB)(b)); and,
  • The underlying supplier and the operator of the electronic marketplace have agreed, recording their agreement in a document, that the underlying supplier is liable for the payment of GST in relation to the supplies made through the electronic marketplace, and will continue to remain responsible for their tax obligations under the Act (section 60C(2BB)(c)). This includes providing the recipient of the services with taxable supply information, if required, and providing GST returns and paying GST to IR.

DET 24/02 presently applies for a 12-month period (for taxable periods starting on or after April 1 2024 and ending on or before March 31 2025).

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.

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