Can I deduct for taxation purposes rent I pay for a property from income through subletting it?

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Benjamin Connor

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As I was travelling a lot in the past year, I occasionally sublet my apartment (which I myself am a tenant of) to people via Airbnb. I did this under the assumption the income would fall under the 'rent a room' relief, however it was recently clarified that this is not the case.

Since this activity is now considered a actual business, I will have to pay taxes minus relevant costs. As I thought myself safe under the rent a room relief, I did however not keep any receipts for most of the cost incurred for guest stays.

I was therefore wondering if I could maybe deduct the rent I pay myself for the property. I mean - if my subletting is considered a business, then the rent I pay is vital for me to run the business, hence I should be able to deduct that cost from the income?

What do you think? Any advice on this?
 
I presume you can only deduct the cost of rent for the days that the property is actually sublet, ie if you sublet it for 5 days per month then you deduct the cost of 5 days rent, rather than deducting the entire rent for the month? Would the same apply to mortgage interest costs in the case of property owners?
 
That's an interesting question. As far as I understood, the obligation is to report the total revenue and total cost in a given year. I assumed that means you could subtract the entire rent from the subletting income. Can anyone comment on this?
 
I think Revenue will have to come out with some guidance on this.

If I live in my house full time I get not tax relief at all.

If I rent out a room in my house on a long term basis how much of the loan interest should I be allowed to deduct (Assuming rent a room relief did not exist for a minute). Is it 1/3 as myself and by wife live here anyway so the amount for the lodger is 1/3 of the people living here?

Is it 1/3 x 5/7 as the lodger does not stay at weekends?

If we let a room through Airbnb again is it 1/3 or is it 1/3 x no of nights there is someone stating here /365?

Does the fact that I'm using my house as a B&B compromise the PPR exemption so the more interest I claim the more of PPR I forego.
 
Joe 90 from my radio listening the fact it's now a business has CGT implications for the PPR exemption. Some kind of percentage. As you said revenue need to clarify.

Logically one should be allowed to deduct the following:
Heating
Electricity
Water
Advertising
Washing machine use
Dryer costs

But the biggest cost to Air B &B is one's own labour in the changing of the beds, the laundry, having to deal with bookings, being there to great people, making breakdfast - normally for a landlord one's own labour is not allowed - but there is quite a lot of work in Air B&B and I should know as I worked in a guesthouse and it was non stop morning till night in July/August etc.

If the cost of one's own labour is not deductable I'd imagine, especially for top rated taxpayers, this business might not make any sense for the paltry return one looks likely to receive.
 
Of course the cost of one's labour is not deductible, the money one receives for one's labour is wages which are also subject to income tax. It makes no sense at all to deduct eg an hourly rate from rental profit, case V and then declare the same amount under case I or IV.

In fact, until prsi on rental income was recently introduced for non-chargeable persons people saved by not having to declare part of their rental income as earned "labour" income.

The money one makes from Air bnb is the same as any other "extra" source of income, often not worth your while if you are paying the higher rate of tax.
 
Folks

This Airbnb stuff is utter nonsense on Revenue's part.

If it's below €12k pa, it's "rent-a-room" in my view.

I would happily appeal any assessment issued on foot of Revenue's position and go before and Appeal Commissioner.
 
It seems Revenue are treating Airbnb the same as any traditional B&B.

I'm not terribly familiar with the set-up, but is there a reason it should be treated any differently?
 
Joe_90 said:
Does the fact that I'm using my house as a B&B compromise the PPR exemption so the more interest I claim the more of PPR I forego.
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In theory it may. In practice, the percentage in any given scenario will be minuscule unless the householder makes a bonanza from AirBnB.

Even then the legalities under which AirBnB arrangements operate may well mean that there is no effect of the PPR exemption if the householder occupies the property concurrently.

Gordon Gekko said:
Folks

This Airbnb stuff is utter nonsense on Revenue's part.

If it's below €12k pa, it's "rent-a-room" in my view.

I would happily appeal any assessment issued on foot of Revenue's position and go before and Appeal Commissioner.
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You would lose. The original rent-a-room legislation clearly refers to residential accommodation and the contemporaneous expert commentary on it (Judge Irish Income Tax 2001) unequivocally rules out its application to short-term holiday or other casual lettings.
 
Revenue has issued this eBrief

“In addition to the amendments relating to the increase in the income limit, this eBrief also confirms, in paragraphs 1 and 4.3 respectively, that the relief can apply in the case of lettings to students, but not in the case of guest accommodation, including where such accommodation is provided through online accommodation booking sites.”
 
T McGibney said:
In theory it may. In practice, the percentage in any given scenario will be minuscule unless the householder makes a bonanza from AirBnB.

Even then the legalities under which AirBnB arrangements operate may well mean that there is no effect of the PPR exemption if the householder occupies the property concurrently.



You would lose. The original rent-a-room legislation clearly refers to residential accommodation and the contemporaneous expert commentary on it (Judge Irish Income Tax 2001) unequivocally rules out its application to short-term holiday or other casual lettings.
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No I wouldn't. I believe your analysis is flawed.

Revenue's argument appears to have two legs to it:

- The duration of the stay

- The fact that it might be Case I

Section 216A makes no reference at all to duration, so that argument is spurious. And if one considers the badges of trade in the context of ad hoc Airbnb rentals, I would not like to have to argue that a B&B trade exists.

Interestingly, Airbnb have published their advice from EY on the subject. In their view, "Rent-a-Room" applies (subject to the usual rules).
 
I think it sound more like trading income, as in the same as a B&B or guesthouse. It's totally different to having a lodger in your home under the rent a room scheme.

For Air B&B (which has B&B in the title) it's temporary, you are not resident in the property, you can't use the kitchen etc.

Rent a room is generally to workers or students. They keep their stuff in a room when they go away for weekends or home (students) it's more a lease, they use the kitchen, are part of the household.
 
Mrs Vimes said:
Of course the cost of one's labour is not deductible, the money one receives for one's labour is wages which are also subject to income tax. It makes no sense at all to deduct eg an hourly rate from rental profit, case V and then declare the same amount under case I or IV.

In fact, until prsi on rental income was recently introduced for non-chargeable persons people saved by not having to declare part of their rental income as earned "labour" income.

, often not worth your while if you are paying the higher rate of tax.
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That's my thinking on it too, particularly because it can be labour intensive. I guess the 'profit' is one's wages. So you have to weigh up if renting a room for a night or 25 Euro, losing say 10 in tax, with 5 Euro costs, is worth 10 Euro for washing, cleaning, greeting and making beds.
 
Gordon Gekko said:
No I wouldn't. I believe your analysis is flawed.

Revenue's argument appears to have two legs to it:

- The duration of the stay

- The fact that it might be Case I

Section 216A makes no reference at all to duration, so that argument is spurious. And if one considers the badges of trade in the context of ad hoc Airbnb rentals, I would not like to have to argue that a B&B trade exists.

Interestingly, Airbnb have published their advice from EY on the subject. In their view, "Rent-a-Room" applies (subject to the usual rules).
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Revenue's own [broken link removed] say this:

"Income from guest accommodation such as a bed and breakfast or a guesthouse operation is generally treated as trading income (Case 1) and not rental income (Case V). This type of income, even where it is under the relevant limit, does not qualify for rent-a-room relief"
 
Bronte said:
That's my thinking on it too, particularly because it can be labour intensive. I guess the 'profit' is one's wages. So you have to weigh up if renting a room for a night or 25 Euro, losing say 10 in tax, with 5 Euro costs, is worth 10 Euro for washing, cleaning, greeting and making beds.
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Except you wouldn't be paying 10 in tax, if you are making any sort of reasonable deduction for direct and indirect costs.

Here's my blog post on it. http://mcgibney.ie/2015/08/11/dont-lose-sleep-over-airbnb-tax-returns/
 
T McGibney said:
Revenue's own [broken link removed] say this:

"Income from guest accommodation such as a bed and breakfast or a guesthouse operation is generally treated as trading income (Case 1) and not rental income (Case V). This type of income, even where it is under the relevant limit, does not qualify for rent-a-room relief"
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Hi Terry

Sorry to be blunt, but so what? That is merely their biased interpretation. As you know, it's all about the legislation. My view has always been that Section 216A relief applies. EY's view is that it applies. The retired Principal Officer who spoke on Newstalk yesterday did not support Revenue's view.

Regards

GG
 
My view is that these Airbnb don't fall into Case V and therefore don't qualify for section 216A.

I understand the rational for S216A but I can't see why someone who buys a house to generate rental income of €10,000 pa gets an exemption while they live in it. Why not just subject the income to tax and give them a interest deduction.
 
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Joe_90 said:
My view is that these Airbnb don't fall into Case V and therefore don't qualify for section 216A.
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Do you think it's Case I (i.e. some form of hotel-keeping trade)?

If someone has a five bedroom house, with four bedrooms pretty much constantly let out through Airbnb and it's their principal activity, perhaps.

But looking at the Badges of Trade (e.g. Motive, etc), it is difficult to see how one could argue that a homeowner who uses Airbnb to let out a spare room in his/her home could be deemed to be carrying on a trade. That has passive rental income written all over it in my view, especially if the owner has another entirely unrelated job.

If I have a spare room in my house, and I let it out for 6 months to a student or I let it out for 6 days to a seconded worker, what is the difference? Section 216A makes no reference to duration.
 
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