Even money earned from babysitting or dog walking can be taxed. Photo / 123rf
Misinformation abounds when it comes to (not) paying taxes. People who make money from the „gig” or „sharing” economy are often confused. They can earn money on sites like Fiverr,
href=”https://www.nzherald.co.nz/topic/uber/” target=”_blank”>Uber, Lyft, Airbnb or directly from language schools or boarders. They can do marketing, accounting, UX design, charge rideshare scooters overnight and many more paid tasks.
There is a fairly widespread (and sometimes desirable) ignorance about the tax on this income. People often think that money earned on foreign sites does not need to be declared in New Zealand.
I know I'm in the minority, but I see taxation as a positive that pays for education, health, roads and all the other infrastructure and services that make up a civilized existence. For that reason, I raise an eyebrow when a trader asks for cash or I see social media posts where people talk about avoiding their tax obligations.
There are a lot of blind people leading the blind in those online discussions, saying that people don't need to declare this or that income. James Fuller, chief executive of HNRY, a provider of accounting and tax automation tools for sole traders, sees the same. Fuller says misconceptions about tax obligations in the gig economy are widespread discussions among workers and even in forums, social media and traditional accounting circles.
Whether the money is paid into a foreign bank account or directly here, Fuller says, all income is taxable. „When you are a New Zealand tax resident, the income must be reported to Inland Revenue as part of your tax return, regardless of where it comes from, whether it is New Zealand resident or otherwise.” All tax on a side gig is added to and taxed with main job or sole trader income, he says.
From overseas customers, earning money on overseas sites and making payments to overseas banks, they cannot receive the money if they live in New Zealand. She says that in theory there is no money to be made from babysitting or dog walking.
From January 1 this year, large offshore sites will have to report to our Internal Revenue Service [IRD] About income earned by residents of New Zealand. That means the money people fail to declare from their gig work will show up in the IRD's systems anyway, and some tax evaders will start receiving letters to get their tax affairs in order or face penalties.
„IRD has just completed a $2 billion transformation project,” says Fuller. „I would say a huge amount to mitigate non-compliance, especially in sectors that have been deliberately non-compliant for a period of time.”
One of the most confusing areas of declaring gig income is renting out rooms through short-term rental sites or students and hostels. Each has its own rules. But everything is taxed. If you're a landlord, so is income from flatmates. Income from houses offered on short-term rental sites must also be declared. In each case, taxpayers can claim expenses against income, but on top of that, they pay tax.
On the other hand, Fuller says, many gig/sharing economy workers do not claim their full expenses against the income they report to the IRT. „A lot of people aren't well-educated about what they can claim as a business expense to offset some of that tax liability.”
For example, HNRY has customers who drive daily courier vehicles. „One of the things they often don't do is track and claim the amount of their household electricity they're using to charge these scooters.”
Another tax rule that will change this year and affect some taxpayers is that from April 1, 2024, online foreign operators facilitating these sharing economy services must charge GST on sales when the service is provided, supplied or received in New Zealand.
This causes a lot of confusion in the discussion forums. This means that the company, for example Uber or Airbnb, must collect GST from the customer for the services they sell. Individual drivers or Airbnb hosts earning below $60,000 per year do not necessarily need to be GST registered. Individuals earning more than $60,000 from these sites should register, but seek the best accounting advice.
GST can be a landmine. You may have to pay GST when you sell your home.
