In a significant update from the IRD, starting 1 April 2024, GST will be handled differently for rideshare drivers in New Zealand, impacting both GST-registered and non-registered drivers. Understanding these changes is crucial for every driver aiming to maximize their earnings and navigate the new tax landscape effectively.
Key Changes and Their Impact
Direct GST Deduction
Regardless of your GST registration status, the IRD mandates that GST will be deducted from your earnings. This means a more straightforward process but also requires you to be mindful of how much you're actually taking home.
Additional Credit for Non-GST Registered Drivers
For drivers not registered for GST, there's a silver lining. Uber will pass back an 8.5% credit to you. This is a partial offset for the GST deducted, acknowledging the costs you incur in providing your service.
The Advantage for GST-Registered Drivers
If you're GST-registered, your rideshare income will now be zero-rated. Here’s what that means:
Zero-Rated Income: While the GST on your income is directly remitted to the IRD, when you file your GST, your income will become zero-rated, which means you won't pay GST on it (because GST has already been paid automatically). However, you can still claim GST credits on your business-related expenses.
Benefiting from Expenses: GST-registered drivers can claim a refund on the GST paid for business expenses since the income is zero-rated. This effectively means you could see a return on the GST refunds when you file your GST return.
A Detailed Example Under the New GST Rules
To illustrate how the new GST rules affect rideshare drivers, let's consider a more detailed scenario involving both earnings and expenses for a GST-registered driver:
Monthly Rideshare Earnings: $6,000. Under the new system, Uber deducts 15% GST before payout, remitting it directly to IRD. Your gross income is now $5,100
Monthly Business Expenses: $3,000, including GST. This includes fuel ($1,000, GST $130), vehicle maintenance ($1,500, GST $195), and a mobile phone plan ($500, GST $65).
Reporting and Refunds:
Income Reporting: As a GST-registered driver, you report $5100 as zero-rated income on your GST return. This means you owe no GST on this income.
Expense Claims: You've incurred $3,000 in business expenses which included a total of $390 in GST ($130 + $195 + $65).
GST Return: You don't owe GST on your income since it's zero-rated, but you've paid $390 in GST on your expenses. You can claim this $390 as a credit on your GST return.
Outcome:
Refund: Since the GST on your income is zero-rated and you’ve claimed $390 as a credit for the GST paid on business expenses, you're entitled to a GST refund of $390 from the IRD. This refund effectively lowers your overall expenses, improving your net income for the month.
Example – Non-GST-registered seller
Jared is not GST registered. He provides driving services in Wellington on a ride-hailing platform. The platform charges a customer a fare of $30 for Jared’s services. The platform adds 15% GST to this fare, charging the customer a total of $34.50.
As Jared is not GST registered, the GST amount of $4.50 is accounted for in the following way:
$1.95 (6.5%) is returned to Inland Revenue
$2.55 (8.5%) is passed on to Jared. Jared receives a monthly statement from the platform confirming the flat-rate credits passed on to him.
Reporting Gross Income: A Crucial Shift
Traditionally, many rideshare drivers have based their income calculations on the net amount received in their bank accounts. However, this approach does not accurately reflect the gross income, which includes total earnings before any deductions by Uber.
Why Correct Reporting Matters:
GST Registration Threshold: In New Zealand, you're required to register for GST if your income exceeds NZ$60,000 in a 12-month period. Misunderstanding what constitutes income — using only what lands in your bank account rather than your gross income — might lead some drivers to incorrectly assume they're below the threshold.
Increased Transparency with IRD: With platforms directly reporting to the IRD, there will be clear visibility over your actual earnings. This change highlights the importance of correctly assessing whether your gross income crosses the GST registration threshold.
Proactive Compliance: To avoid potential issues with the IRD, it's critical to evaluate your earnings against the GST registration threshold properly. If your gross income from rideshare services exceeds NZ$60,000, it's time to register for GST, ensuring you stay ahead of obligations and leverage potential financial benefits.
Navigating GST Changes with 93 Accounting
The shift in GST handling presents both challenges and opportunities for rideshare drivers across New Zealand. Understanding the automatic deductions, the importance of gross income reporting, and the benefits of GST registration are crucial steps in maximizing your take-home pay and ensuring compliance.
93 Accounting specializes in helping rideshare drivers like you adapt to these changes. Our expert team is dedicated to providing strategic advice and support, from evaluating your need for GST registration to optimizing your GST returns. Click here to contact us