Tax is something I don’t typically write about as it doesn’t tend to be much of a crowd pleaser.

However, as death and taxes are the only two certain things in life (as the saying goes) and the fact that there are a few key tax changes about to occur, I feel compelled to do so in this instance.

On the 1st of April 2024, a few tax changes come into play that could impact how much net earnings you generate in the future. I'll talk about two changes below to help you understand how they might affect you (if they apply to you) and give you enough time to get ready.

Trust Tax Rate Change

From 1 April 2024, the basic tax rate for trustee income will increase from 33% to 39%. This adjustment will match the top marginal tax rate that applies to individuals earning over $180,000.

Trustees must be aware of the implications this increase has on the taxation of trust income. The new trustee tax rate may influence decisions around the distribution of income to beneficiaries, as taxable distributions are generally taxed at the beneficiary's personal rate.

If your trust holds shares in an operating company, you have until 31 March 2024 to raise a dividend in that operating company to clear out any imputation credits available.

This is important to know because if you change the dividend before 31 March 2024 the Trust will be taxed at the existing 33% rate, whereas if you declare a dividend after 1 April 2024 the tax increases to 39%.

I would recommend speaking to your accountant as soon as possible for clarity, as the potential cost savings may be significant. 

The “App Tax” – GST changes impacting accommodation providers

The so-called "app tax," is also starting in April 2024. It is an adjustment to New Zealand's existing GST rules, expanding them to "listed services" like ride-sharing, food delivery, and short-term accommodation.

This change will impact platforms such as Airbnb and Uber, requiring them to collect and pay GST on all transactions, even if the driver or host is not registered for GST themselves.

How could this affect you? The ultimate impact will largely depend on the circumstances of the operator and underlying short-term accommodation provider.

The following are the most common scenarios:

Holiday homes that are not registered for GST

Consider Bob, an accommodation provider with a holiday home advertised on Holidays-R-US. As his turnover is below $60,000, he isn't GST registered. If Richie stays for one night at a cost of $100, the "App Tax" imposes 15% GST ($15), collected by Holidays-R-US. Bob receives a standard input credit of 8.5% ($8.50), resulting in a net payment of 6.5% ($6.50) to the Inland Revenue Department. Consequently, Bob experiences a 6.5% reduction in annual revenue from April 1, 2024, onwards.

Overall, this will result in Bob receiving 6.5% less revenue from 1 April 2024 than he had in

the past. As such, you may want to review pricing so not to impact what you receive in the

hand.

Holiday homes that are already registered for GST

Taking the facts above, Bob’s neighbour, Jenny, is also an accommodation provider and advertises her holiday home via Holidays-R-US. Unlike Bob, Jenny is registered for GST as her turnover is greater than $60,000. Hence, Jenny already charges 15% GST for guests and claims GST on costs related to providing the accommodation. Richie stays one night at Jenny’s home for $100 + GST.

The total 15% ($15) will now be paid by Holidays-R-US to Inland Revenue. Jenny will treat any income as a zero-rated supply for GST purposes (so as not to double pay GST) as Holidays-R-US has already collected the GST.

GST-registered owners are allowed to opt-out of Holidays-R-US collecting GST on their behalf (and continue collecting and paying GST as you currently do), but if you don’t choose to opt-out it is important that moving forward sales via apps such as Holidays-R-US are zero rated for GST purposes so you don’t double pay.

Large operators (hotels and holders of management rights)

A large Hotel next door to Jenny’s home, Luxury Hotels, advertises homes via its website and through online intermediary websites such as Booking.com. Under the App tax, any Hotel/Hostel/etc. making taxable supplies of more than $500,000 have the option to opt out of the platform rules, without requiring the platform's consent.

In conclusion, staying informed and proactive about these upcoming tax changes is crucial for protecting your financial interests. If you have any questions or concerns, our team at BDO is ready to provide support and guidance tailored to your specific situation. Don't hesitate to reach out – we're here to help you navigate the evolving tax landscape.