Sunday 25 August 2019

Can retirees claim rent-a-room relief?

Email your questions to lmcbride@independent.ie or write to ‘Your Questions, Sunday Independent Business, 27-32 Talbot Street, Dublin 1’. Stock image
Email your questions to lmcbride@independent.ie or write to ‘Your Questions, Sunday Independent Business, 27-32 Talbot Street, Dublin 1’. Stock image

Padraigh Donnelly

Q: I'm thinking of renting out a room in our home to generate a bit of extra income in my retirement. Is it possible to claim rent-a-room relief if you are a retired individual who is not earning any taxable income (and therefore not paying tax)? Or can you only claim rent-a-room relief as a retired individual if you are paying tax in some way (such as through your pension)? Also, do I need to file a tax return for income earned under the scheme? Una, Salthill, Co Galway

You may claim rent-a-room relief even if you are not in receipt of income from any other source. If you let a room in your home to private tenants, the rental income you earn will be exempt from income tax, provided this income does not exceed a certain limit in a tax year. This is called rent-a-room relief. Since January 1, 2017, the annual limit on exempt income is €14,000. This means that up to €14,000 can be earned under the scheme tax-free.

The relief only applies to individuals - not to companies or partnerships. However, it can apply where the income goes to more than one person, such as a husband and wife - in which case the limit is divided equally between them. If the income you receive exceeds the income limit (€14,000 in 2017), then you are taxed on the total amount, not just on the amount by which the income exceeds the limit.

The tax exemption for income received under the rent-a-room scheme does not remove the obligation to make a return. You can do this quickly and easily, using the Revenue Commissioner's online services - that is, myAccount or ROS.

If using myAccount, you must file a Form 12 return to claim the relief if you have income to which the rent-a-room relief applies and you have no other source of income, or if your only other source of income is employment income taxed under PAYE. The online Form 12 in myAccount includes important information from your Revenue record making it quick and easy to complete. It allows you to make a return of your income and claim tax credits, allowances and reliefs for the year ended December 31.

If using ROS, you must submit a Form 11 instead by October 31 (or mid-November if filing online) in the year following the one you earned the non-PAYE income - if your gross non-PAYE income exceeds €30,000 or your net non-PAYE income exceeds €5,000 a year. Self-assessed taxpayers must enter the amount of exempt income on their Form 11 return, using ROS.

For more information, visit Revenue's website at www.revenue.ie.

Must I declare extra pay?

Q: If a PAYE worker earned some additional money (€1,000 for example) in 2017, do they need to inform Revenue? Also, must a return be filed and how and when is any tax due payable? John, Co Monaghan

Generally speaking, all income is taxable and it is important to be aware of your tax obligations, as failure to comply can result in a liability to interest and penalties, publication in the list of tax defaulters, and even prosecution.

A: PAYE worker who has income which is not taxed through the PAYE system (such as occasional income, rental income, investment income, share options and so on) is required to file a tax return and declare income from all sources.

This means that for any year in which you have non-PAYE income, you are required to file a return of your income from all sources by October 31 in the following year. (The October 31 deadline is extended to mid-November for those who file online).

Where an individual has non-PAYE income, in relation to which either the taxable income exceeds €5,000 or the gross income exceeds €30,000, they will be a chargeable person for income tax purposes and must register to pay-and-file under the self assessment system.

An individual will not have to pay-and-file under the self-assessment system if they only have PAYE income.

Neither will the individual have to pay-and-file if their taxable non-PAYE income does not exceed €5,000 and their gross non-PAYE income does not exceed €30,000 - provided this income is taken into account in calculating their tax credits and standard rate cut-off point for PAYE purposes.

In these cases, the taxpayer must submit a Form 12. The quickest and easiest way for PAYE taxpayers to return income from all sources is by using myAccount.

Using PAYE Services in myAccount, you can submit a tax return, declare income, claim credits or refunds, or tell Revenue about a new job or private pension.

In the scenario as outlined in your question, you should submit a Form 12 for 2017.

You can do this in myAccount by clicking on 'Review your tax 2014 to 2017' on the PAYE Services card. You should include details of your income from all sources, and pay any outstanding tax using RevPay, Revenue's online payments service.

How is Airbnb taxed?

Q: What tax are people who offer an Airbnb service in Ireland liable to - and can I write maintenance and repair costs for an Airbnb property off my tax bill? Frank, Laragh, Co Wicklow

The tax treatment of income from providing accommodation to occasional visitors for short periods, including accommodation provided through an online accommodation booking site, depends on whether or not the income arises in the course of a trade.

If you provide guest accommodation on an occasional basis, you will not be regarded as carrying on sufficient activity to constitute a trade, and the income is taxable under Schedule D Case IV (which typically applies to miscellaneous income). The amount of taxable income is computed and charged to tax in the normal manner. In assessing income under Case IV, there is no provision in the tax code setting out allowable or disallowable costs. However, in determining the profit element of any such income, it is long-standing Revenue practice to allow a deduction for incidental costs directly associated with the provision of the service. Therefore, 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 and heating utilised by guests) should be allowable.

No deduction is permitted however for annual costs associated with a property, as these are costs to be borne regardless of whether or not a service is provided. Such costs would include for example mortgage and insurance costs, TV licence fees, or general maintenance expenses including running repairs, the cost of repairing or replacing fixtures or fittings, and so on. These are all expenses to be borne whether or not the property is let.

Whether a trade is being carried on depends on the particular facts and circumstances of each case. A key factor in this is the frequency with which the property is available for occupancy and is let out to guests. In order for the income to be considered trading income, the property is expected to be available for rent on a continuous and commercial basis. The provision of traditional short-term guest accommodation in hotels, guesthouses, B&Bs and hostels will generally constitute a trade. Profits derived from a trade of providing guest accommodation are taxable under Schedule D Case I.

Padraigh Donnelly is a manager in the Revenue Commissioner’s planning division

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