Airbnb hosts may face greater tax bills as Revenue tightens up allowable expenses

Property owners letting properties on an occasional basis via platforms such as Airbnb may face slightly greater tax bills than previously expected, following a clarification from the Revenue Commissioners on allowable expenses.

On April 17th, the Revenue published a brief examining the tax treatment on income earned from short-term lets.

Barry Flanagan, director with Taxback.com says that the ebrief has “definitely prompted people to come forward and check its impact on them personally” as it may mean a change in how people are deducting expenses from their tax bills.

“Revenue has aimed to clarify which expenses, relating to the provision of short-term accommodation, are allowable (and under what circumstances) as tax deductions,” Mr Flanagan said.

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This means that hosts who let a property, which may be their home, on an infrequent or occasional basis, will no longer be able to claim certain expenses to offset against their tax bill.

For example, capital allowances, which are often claimed for annual wear and tear of a property’s fixtures and fittings, are not allowable for these type of hosts, who are taxed as “Schedule D Case IV”. Moreover, these hosts can’t claim pre-letting expenses, which would include any monies spent in the three years leading up to letting the property, on painting the property for example, or purchasing bed linen or towels to be used by guests ahead of the first letting. Revenue has also clarified annual costs associated with a property, such as insurance, TV licence and general maintenance, are not allowable.

“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 Revenue said.

However landlords who effectively run Airbnb type businesses, and let their properties on a regular basis, will be entitled to offset a greater range of expenses against their tax bills.

“There is distinct differentiation between frequent and occasional hosts and what they are allowed to write off in expenses. It is the host themselves who is responsible for determining which category they fall into,” advises Barry Flanagan.

This means that these type of hosts can use capital allowances and pre-letting expenses to offset their tax bills.

Both types of Airbnb hosts will still be able to offset expenses “incurred directly” in offering the service, such as 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.

Airbnb in Ireland

Last year, figures for Airbnb Ireland show that hosts earned a total of €115 million, while there were 22,800 active listings. As well as offering services in the Irish market, Airbnb also has a significant corporate presence, and all of the listings for the accommodation platform’s global business - outside of the US and China - now goes through Airbnb Ireland, based in the Watermarque Building in Ringsend. Moreover, if you book a host service, or if you’re based in China but create a listing outside of China, then you will also deal with Airbnb Ireland.

This means that about 3.2 million global listings are dealt with in Ireland, while the US company will also route Japanese listings through Dublin from June 13th 2018. Airbnb Global Services Limited was created in February to deal with Japanese listings following a regulatory change in Japan. The scale of this business is unknown however; Airbnb is a private company and its main Irish operation is unlimited.