Many Airbnb hosts likely to pay up to 52% taxes on income arising from hosting
Revenue has been writing to about 12,000 Airbnb hosts over the past couple of weeks, reminding them of their obligation to file a tax return.
Revenue have requested details of all hosts from Airbnb for years 2014, 2015 and 2016, and it is understood that this information, together with details of the payments made for hosting, has been provided to Revenue.
The income from short term letting of accommodation is generally seen by Revenue as either trading or passive income, and not as rental income, and income tax is usually due on such income at a tax payer’s marginal rate of income tax.
In practical terms, this means a tax payer who already earns sufficient income to absorb their tax credits and tax bands could face exposure to income tax, PRSI and USC on their trading or passive income arising from Airbnb hosting of up to 52%.
Revenue’s recent guidance document clarifies that persons who provide short-term guest accommodation, either in their home or in another property owned by them, will only be trading to the extent the activity is sufficiently frequent and regular, and is carried out on a commercial basis and with a view to the realisation of profit.
Where income from hosting is occasional or infrequent, then the income is broadly taxed in the same manner, but described as passive income.
In assessing the amount of taxable profits from passive hosting, there is no specific provision in the tax code setting out allowable or disallowable costs.
However, Revenue’s practice is to allow a deduction for incidental costs directly associated with the provision of any such service.
According to Revenue’s guidance, expenditure incurred directly in the provision of the guest accommodation, for example commission paid to online accommodation booking sites, cleaning fees, the cost of breakfast provided to the guests, as well as a reasonable apportionment of electricity, gas, heating etc. utilised by guests, should be allowable.
However, annual costs associated with a property, such as insurance costs, TV licence, general maintenance costs etc, are not costs directly borne in relation to the accommodation service provided.
They are costs to be borne irrespective of whether a service is provided and, accordingly, a deduction would not be permitted for these costs.
The good news for would-be hosts is that, in the majority of instances, a person letting out a room or two of their home for Airbnb will not face a restriction of their Principal Private Residence Relief, in the event that they have a taxable gain on the future disposal of their home — unless a particular room or part of a residential property was used exclusively for business purposes.
The income derived from Airbnb, even where this income is derived from the letting of rooms within one’s own home, will not qualify for rent-a-room-relief.
Even those engaging in longer term lettings cannot avail of rent-a-room relief, where the room which is let comprises a self-contained unit that is adjacent to a taxpayer’s residence, but not actually attached to it.
Taxpayers should note that part time or occasional Airbnb hosting is additional income that does need to be declared in an individual’s tax return.
Where that individual is not already registered for income tax, and where their gross non-PAYE income is less than €5,000 per annum, then the income can be declared by filing a Form 12, alternatively the income is declared by filing the longer Form 11.
The information available to Revenue is ever increasing, with Department of Agriculture receipts, Department of Social Protection payments, rental income data provided by the Residential Tenancies Board, payments received which were subject to professional services withholding tax or Relevant Contracts Tax.
All are being fed into Revenue’s system.
The message is clear, if you have additional income above and beyond standard PAYE income, then you have an obligation to file a return and declare this income to Revenue.
