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

I'm wondering whether there is a landlord tenant relationship.

For instance I notice that Airbnb set certain standards and also provide a "Host Guarantee":-

“Although you're unlikely to experience any issues with property damage on Airbnb, we understand that you may need protection. The Host Guarantee will reimburse you for up to €800,000 in damage to your eligible property. It's the latest example of Airbnb's commitment to helping create a safe and trusted community around the world.”

It would be unusual in a landlord tenant situation for an unconnected party to provide compensation for damages to a landlord.

Does a lease exist between the person who hosts and the person who stays in the property?
 
Gordon Gekko said:
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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Looking at the badges of trade, I don't see how you can argue it out of Case I, but there you go, doctors differ..!
 
Jon Snow said:
Looking at the badges of trade, I don't see how you can argue it out of Case I, but there you go, doctors differ..!
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True. If I was an Appeal Commissioner, I'd be focussing on the motive test. Front page of the Irish Times business section today.
 
Gordon Gekko said:
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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But that's completely different. The student is living there. The seconded worker is staying there for a temporary period of 6 days, he could just as likely be in a B&B, an hotel, a guesthouse.
 
Isn't Air BnB simply a means of securing a tenant/lodger/use whatever word is most suitable. In that regard I see no difference between it, advertising in a newspaper for someone, advertising on daft.ie, or any of the other forms of media.

To say that simply through the use of Air bnb implies that no tax payable simply through using Air bnb I find frankly ridiculous. There's a need to look at the facts of the situation. eg

1 Using Air bnb to secure a student - tax law seems to say this is not taxable subject to certain conditions. Student tax initiative.
2 Using Air bnb to sure someone who uses the room as their residence - again seems to qualify with conditions. Same would apply if they secured the room through a newspaper or daft.ie. The means by which a person was secured is not relevant.
3 Using Air bnb, newspaper, daft.ie, or other, to obtain people to stay for a short term, eg two weeks holidays, a few weeks working in Ireland - this was never intended to qualify under the rent a room legislation.

The rent a room relief was brought in to help with increasing the supply of rooms for residential purposes. To suggest that using Air bnb to get a whole series of many different people for short term stays equates with what the rent a room scheme was intended for is simply wrong. The Air BnB has like many other debates has got confused and is being over simplified in the media, as a one size fits all argument. It was never appropriate for people to assume that all rents on the Air BnB qualified under the rent a room, no matter what the facts were. (What makes Air bnb a little different is that fact that the income under it is more visible and is easier to prove).

Though I think the Revenue should have been much clearer and much quicker in telling people this, Revenue were very slow/late in clarifying things. For this reason, if people hold their hands up, communicate the income, then no way should there be interest or penalties, would be unfair, the Revenue should come out and clearly state this to reduce any fear people may have. Also for fairness people could be given the opportunity to make related tax payments over a period of time, say the same length of time as that in which the income arose in the first place perhaps, to allow them manage their affairs.

As an aside, any related incremental expenses should be allowed as a deduction, food, heat and light, etc. Don't think mortgage interest should be allowed as the house wasn't bought with the intention of generating rent (not wholly and exclusively). If it was then the rental is most definitely a trade, subject to all taxes that apply to landlords, no question in my mind on this.

Another initiative related to property that as a country we can't/didn't get right!! Hilarious if it wasn't so serious!!
 
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Bronte said:
But that's completely different. The student is living there. The seconded worker is staying there for a temporary period of 6 days, he could just as likely be in a B&B, an hotel, a guesthouse.
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But the legislation does not have any conditions regarding duration of stay. I would contend that renting a room in someone's home for 3 days, 3 weeks, or 3 months are the same for the purposes of the legislation.

I agree with the above poster though - Clearly not all Airbnb lettings qualify for "rent-a-room". But if a person's starting point is "I'm going to use Airbnb as a more efficient and more profitable way to secure a 'lodger'", I don't see how the "Motive" Badge of Trade can be "failed".
 
Gerard123 said:
Don't think mortgage interest should be allowed as the house wasn't bought with the intention of generating rent (not wholly and exclusively).
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How should the original intention on acquisition be relevant? Either the cost applies to the taxable activity or it doesn't. End of.
 
Gordon Gekko said:
But the legislation does not have any conditions regarding duration of stay. I would contend that renting a room in someone's home for 3 days, 3 weeks, or 3 months are the same for the purposes of the legislation.
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I agree that the legislation does not have conditions regarding duration.

But there is a difference between getting a tenant for 12 months and a series of people who stay for 1-7 nights.

It's not clear at all which is demonstrated by the differing views on here but if you have say 10 different people staying in your house over a period of time it's looking like a trade! Not withstanding the fact that it was not the motive of the house owner when they bought the house.
 
Joe_90 said:
I agree that the legislation does not have conditions regarding duration.

But there is a difference between getting a tenant for 12 months and a series of people who stay for 1-7 nights.

It's not clear at all which is demonstrated by the differing views on here but if you have say 10 different people staying in your house over a period of time it's looking like a trade! Not withstanding the fact that it was not the motive of the house owner when they bought the house.
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Why is it different?

The starting point is "I have a spare room and wouldn't mind having someone share my house with me if it means an extra few quid".

In those circumstances, from a Section 216A perspective, one tenant for 12 months or 52 tenants for one week each should be treated exactly the same.
 
Gordon Gekko said:
In those circumstances, from a Section 216A perspective, one tenant for 12 months or 52 tenants for one week each should be treated exactly the same.
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In my view 52 guests using your guest accommodation is a trade and therefore section 216A does not apply!
 
Joe_90 said:
In my view 52 guests using your guest accommodation is a trade and therefore section 216A does not apply!
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Why? You can't look at a single Badge of Trade (e.g. Frequency) in isolation. The typical scenario as outlined in my above post only differs from a long term rental in terms of duration. But it's an interesting discussion.
 
m
T McGibney said:
How should the original intention on acquisition be relevant? Either the cost applies to the taxable activity or it doesn't. End of.
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End of? Absolutely not 'End of', with respect. The test for deduction is wholly and exclusively, like any other trade and taxable activity. If the house was purchased wholly and exclusively for renting out then sure interest is a deduction (wrong to be restricted to 75% but that's life!).

However, if the house was bought for residential use by the owner and they decide to use one of the rooms for renting out then it may fail the test.

(As an aside, if mortgage interest started to be allowed under these scenarios there would be 'havoc', creative schemes of all types, simply with the intention of getting a deduction. Think we have had enough of these schemes on property.)

Pretty straightforward re the intention at the start - did the owner live in the house that they purchased or was it registered as a buy to let? The intention is most certainly relevant.
 
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Gerard123 said:
End of? Absolutely not 'End of', with respect. The test for deduction is wholly and exclusively, like any other trade and taxable activity. If the house was purchased wholly and exclusively for renting out then sure interest is a deduction (wrong to be restricted to 75% but that's life!).

However, if the house was bought for residential use by the owner and they decide to use one of the rooms for renting out then it fails the test.

(As an aside, if mortgage interest started to be allowed under these scenarios there would be 'havoc', creative schemes of all types, simply with the intention of getting a deduction. Think we have had enough of these schemes on property.)

Pretty straightforward re the intention at the start - did the owner live in the house that they purchased or was it registered as a buy to let? The intention is most certainly relevant.
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With respect Gerard, this is nonsense. The original intention at the time of acquiring a loan is irrelevant, otherwise by your logic none of the tens of thousands of landlords letting houses that were originally acquired as their PPR would be able to deduct interest.
 
Jon, thanks. I guess I badly worded what I meant and didn't full explain it so will take another stab. My comment certainly does not mean that a house bought as a PPR and then becomes a let should not have an interest deduction. Certainly not my intention for that interpretation. My comment was purely in the context of the Air bnb debate. I think if you read both my comments they give a better sense of where I am coming from.

If someone buys a house at the start and its is a buy to let that is very clear.
If someone buys a house to live in at the start and subsequently it changes to buy to let then clear also.
In both these cases they are rental properties, subject to tax, all normal deductions for expenses, mortgage interest, etc. Subject to CGT when sold under normal rules that apply in each case.

For Air bnb the situation is clouded and it certainly is not black and white. The situation is clouded as it is a combination of owner occupied residential and other party. The other party could be one of a number of scenarios (e.g. student, long term residential, short term holiday guest, etc). It is not clear how to treat the rental income, hence the current debate. Dealing with the mortgage interest is even more complicated.

My comment re the intention is that it is one of the many factors that need to be considered, together with other factors, in deciding how to deal with mortgage interest. Let me give two examples.

1 Jon is 35 and bought a house two years ago. It was a four bed house and in the financial workings provided to the bank Jon included the fact that he was planning to rent out one room, and he included that rent a room income in the mortgage application. He insured the house accordingly. Should Jon get an element of his interest as a deduction? Well, if you use the wholly and exclusively test then it appears to me that Jon would have a strong argument with the Revenue to get a partial interest deduction. If the Revenue were to now seek to charge tax on Jons rental income then it appears to me very unfair not to allow an interest deduction in the circumstances (partial deduction only of course).

2 Jon and Mary are in their fifties and have 7 years of their 25 year mortgage left. They have two children who have now left home. To supplement their income they rent out a room. If the Revenue argue that their rental income is taxable then should they get an interest deduction? I struggle in this case to see how the wholly and exclusively test could be met to argue for an interest deduction.

Yet if there was a plain vanilla rule saying that if Air bnb income is taxable then interest is deductible both above examples would have deductions. It is a perfectly rationale argument of course to say there should be similar treatment and both should have interest deductions (I am not arguing this point at all). What I am saying is that under Tax law the wholly and exclusively test must be passed and different situations can lead to different answers. The specific facts and circumstances, including looking at the history (better choice of word), must be considered.

There is also the issue of CGT to be considered on a sale, but not getting into that here.

All good intentions...............
 
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