GST on Foreign Online Travel Agents

Contributed by HOLMANS ACCOUNTING & TAXATION -19 July 2017

GST on Foreign Online Travel Agents

You will by now be aware that there have been changes to the GST laws (effective 1 July 2017) which apply to Non-Resident Online Service Providers. The rules apply to Foreign OTA’s such as booking.com and Expedia and this will have an impact on you.

The law change has generated significant uncertainty within the industry and for that reason we wish to respond to some of the questions we have received. Are all businesses impacted? The new laws provide an exemption if the customer’s property is registered for GST (i.e. charges GST on the tariff to guests).

In short, the government will not make the Foreign OTA collect GST (and pay it to the ATO) if the customer will claim back the GST charge in its BAS.

For Management Rights Operators, the Booking.com invoices will include a 10% markup for the GST charged. If the Foreign OTA charge is $100, then the invoice you receive after 1 July will total $110 ($100+ $10 GST). How is it administered? To work out which customers are ‘exempt’, booking.com and Expedia sent an email to its customers to ask the question… “Is your property registered for GST?”

This is a YES or No Question. Holmans view… We maintain our view that for most MR Operators “Yes” is the wrong answer to give.

We contacted the National Tax Association of Australia (NTAA) prior to 1 July to ask how they think our clients should respond to the question… “Is your property registered for GST?”

The NTAA consider that our clients should be answering the question as though they were the unit owner (i.e. the owner of the property) and in most cases the unit owner is not registered for GST. In any event, GST is not charged on the accommodation supplied to guests.

Hence, we are advising our clients to answer “No” to the question.

What is the consequence of answering “No?” The “No” answer supports the general position that the MR operator is acting as an agent for the owners and this helps maintain the position that there should be ‘No GST’ on the tariff charged to guests.

The “No” answer does however mean that the MR Operator needs to on-charge the additional GST from the Foreign OTA to the unit owners and this will reduce the net return for the unit owner on their investment properties. There will be no net change to the profit position of the MR Operator. What is the consequence of Answering “Yes?” We say that the “Yes” answer is incorrect and that it creates exposure for the MR Operator and the industry generally.

We detail our concerns with a “YES” answer as follows:

1. The “Yes” answer is, in our view, incorrect as the “property” is not registered for GST. Booking.com has separately advised some clients that the question is just “Is your business registered for GST?” This is a subtle but important change to the question and we consider that its purpose is to remove booking.com from the obligation to charge the GST.

MR Operators need to be aware that the Government has anticipated that consumers may be tempted to provide the “Yes” answer so that they avoid the imposition of additional GST. The laws have specifically extended the penalty provisions in cases where incorrect information is supplied to the Foreign OTA.

2. The “Yes” answer reduces the GST revenue collected by government. The Government may scrutinise the “Yes” exemptions claimed by the Foreign OTA’s and may seek to recover the underpayment of GST if the Foreign OTA has not collected GST in line with the legislation.

Where an MR Operator has incorrectly answered “Yes” the new GST rules place the responsibility for collecting and remitting the GST back on you as the MR Operator. These will be known as the “Reverse charge rules”. You will appreciate that by answering “Yes” all responsibility is removed from the Foreign OTA and placed on you as the MR Operator to make sure that the initial “Yes” answer was correct!

3. The “Yes” answer suggests that the property owner is entitled to claim GST on costs associated with the supply of guest accommodation. We have consistently argued at an industry level that the accommodation supplied by MR Operators is ‘input taxed’ which means:

a. Owners don’t apply GST to the tariff charged to the guest; and b. Owners absorb the GST on the inputs such as MR operator commissions and other costs. The “Yes” answer indicates that the MR Operator is not acting as agent for the property but as principal or manager. We are concerned that the ATO may use this disclosure as evidence that the MR Operator is operating a commercial residential premises in its own right (not as agent) and this would support the argument that GST should be charged to the guests tariffs.

We know that some in the industry will answer “YES” to the question. For Holman’s clients, we appreciate that there is additional compliance associated with the new rules however our advice ensures that our clients do not expose themselves to future liability. Remember that the additional GST will be borne by the Owner but the penalty for incorrectly answering the Foreign OTA questionnaire may cost you as MR Operator directly.

Please feel free to contact us if you have any questions regarding the changes.

Tony Rossiter

Director

trossiter@holmans.com.au