Do I have to pay tax on my Airbnb income?

With the deadline for filing taxes fast approaching on November 10th, you may be wondering if you should file a tax return this year if you’ve let out a property via Airbnb during the year.

Last year, there was uproar among users of the portal when the Revenue Commissioners issued guidance saying that letting out your property via Airbnb was not a one-way route to a tax-free windfall. Rather, those letting a room or a property on the site would be liable to income tax at their marginal rate – plus the universal social charge and PRSI – after deduction of allowable expenses. This means some landlords are subject to tax of as much as 55 per cent on their Airbnb gains, once expenses for cleaning etc, are deducted.

It was previously thought Airbnb would qualify for the rent-a-room scheme, which allows homeowners to earn € 12,000 tax-free annually by letting out a room in their home.

However, the distinction was made between “permanent” lets – ie to students or long-term tenants – and temporary short-term lets, such as those organised via Airbnb. While accountancy firm EY has since rowed in to assert that, in its view, “rent-a-room relief should be available to Airbnb Ireland’s hosts”, Revenue appears to be holding firm in its view.

Soared

In any case, the imposition of tax hasn't stopped property owners from flocking to the site; figures show that listings on the property-sharing portal soared 66 per cent in Ireland in the 12 months to August.

This means that many hosts should be filing their first tax return, for income earned in 2015, this November. Barry Flanagan, senior tax manager with Taxback. com, notes that so-called "chargeable persons", ie those with non-PAYE income of more than €3,174 in 2015 (€5,000 from January 1st, 2016), must file a Form 11, while those with income of below this threshold must file a Form 12.

To help hosts file their returns, Taxback.com has put together five questions – and answers – every Airbnb host should consider:

1. Is all of the income arising on Irish lettings made via AirBnb taxable?

Yes, in virtually all cases. There is no tax-free allowance. However, you may not pay tax on all of the income. It’s the profit arising that is subject to tax. So some deductions may be allowable.

2. What if I’m not Irish or not living in Ireland?

If the property is located in Ireland, then the income arising will be taxable here, regardless of where the host is located.

3. Are there an exceptions or exemptions?

There is one main exception – “Rent a Room” relief on income of up to €12,000. However, there are strict conditions for this relief, which Revenue has confirmed won’t apply to the vast majority of Airbnb lettings. If, like many hosts, the majority of your lettings are short-term in nature, then Rent a Room relief won’t apply.

4. I read somewhere that the AirBnb income is “rental” income, sometimes called “Case V income“?

Revenue disagrees with this interpretation – if you report it as rental income you will not be compliant in its eyes. To be compliant from Revenue’s perspective, you have to report this income as either Case I “trading” income or Case IV “miscellaneous”income. The main difference between these is the allowable deductions.

If you rent out the room/property on six or more occasions annually, or if you host for 30 or more nights a year, or your Airbnb income exceeds €5,000 a year, or the property is available for occupancy all the time, it’s likely that Revenue will consider that you are carrying on a trade, Taxback.com advises. Feeding guests, such as a offering a cooked breakfast, “would suggest a trade”. Given that a report from Airbnb last December suggested the typical Airbnb host in Ireland earned € 2,600 a year renting out space in their home for about 40 nights a year, it’s likely that many hosts will find themselves filing as Case I trading income.

5. What are the differences in “allowable expenses” between trading/miscellaneous income?

If you are trading, then you have a wider range of deductions available. You can claim for certain pre-letting expenses and also for mortgage interest. If you are not deemed to be trading, the income is classed as miscellaneous and you can only claim for expenses incurred directly in the provision - ie cost of the food provided, heat and light for the period of letting and laundry costs directly associated with that letting.