Sunday 15 July 2018

What expenses can I write off Airbnb tax?

 

Padraigh Donnelly is Manager in the Revenue Commissioners’ planning division (revenue.ie) (stock photo)
Padraigh Donnelly is Manager in the Revenue Commissioners’ planning division (revenue.ie) (stock photo)

Padraigh Donnelly

Q I've heard that Airbnb hosts could face greater tax bills than they expected after Revenue clarified the expenses that Airbnb hosts are allowed to write off their tax bill. Are there any expenses which I could previously write off my Airbnb income tax bill but which I can no longer write off?

What expenses can I write off my Airbnb income tax bill - and what expenses can I not? I rent out accommodation through Airbnb for about six months a year. 

Aine, Dingle, Co Kerry

There has been no change as regards deductible expenses for tax purposes on income arising from the provision of short-term accommodation, in circumstances where a landlord-tenant relationship does not exist. Revenue published guidance last April, providing an overview of the tax treatment of such income, which is available on the Revenue website.

The profits from such activity are taxed under Schedule D of the Taxes Consolidation Act (TCA), 1997. The tax treatment of such income depends on whether or not the income arises in the course of a trade, which is a question of fact. Generally speaking, for the income to be considered trading income, the property or room would be expected to be available for rent on a frequent and regular basis, rather than on a once-off or occasional basis.

Trading income is chargeable to tax under Case I and a deduction will be available for expenses wholly and exclusively laid out for the purposes of the trade. Also, a capital allowance may be due in respect of fixtures and fittings used for the purposes of the trade.

Where the income does not arise in the course of a trade, it is chargeable to tax under Case IV. While there is no specific provision in the tax code setting out allowable or disallowable costs, it is longstanding Revenue practice to allow a deduction for directly associated incidental costs. This could include commission paid to online accommodation booking sites, cleaning fees, and the cost of breakfast provided to the guests. A reasonable apportionment of electricity, gas, heating and so on which is utilised by guests may also be allowable. However, annual costs associated with a property, such as insurance costs, TV licence, and general maintenance costs are not costs directly borne in relation to the accommodation service provided - they are costs to be borne irrespective of whether a service is provided and, accordingly, a deduction would not be permitted for these costs. Capital allowances are not available against the profits or gains that are chargeable to tax under Case IV.

Tax-exempt disabled child

Q Can a mother gift a house (which is not the mother's principal private residence) to a daughter who has a disability and be exempted from Capital Gains Tax (CGT)? It appears there is exemption or relief from inheritance tax for a person with a disability (such as my daughter). However, I am unable to find information on any relief for the donor in respect of CGT. Would the donor's marital status have any bearing on any tax implications of such a gift?
Anthony, Co Roscommon

In the scenario as outlined where the mother is gifting a house to her disabled daughter, any gain will be exempt from CGT if two conditions are met. First, the house must have been the sole residence of the daughter during the period of the mother's ownership of the house. Second, the daughter must be a 'dependent relative' of the mother and be incapacitated from maintaining herself because of old age or infirmity.

The gifting of a house is a disposal for CGT purposes and the marital status of the donor has no bearing on this. The gain is calculated on the difference between the acquisition cost of the house and its market value at the time the gift is made. Costs relating to the acquisition and disposal (such as legal fees) are allowable as a deduction in calculating any CGT due. The first €1,270 of gains arising in a tax year is exempt from CGT.

As outlined above, relief from CGT is available in respect of a gain on the disposal of a house or part of a house which, during the period of ownership, has been the sole residence of a dependent relative. A dependent relative for this purpose is a relative of the individual or of the individual's spouse, who is incapacitated from maintaining himself or herself because of old age or infirmity. A dependent relative can also be a widowed father or mother of the individual - or of the individual's spouse, whether or not the widowed father or mother is incapacitated. Any gain in respect of such property is exempt from CGT.

Relief from CGT is also available in respect of a gain on the disposal of a house that was acquired between December 7, 2011 and December 31, 2014, and has been owned for over four years - and for up to seven years. Any gain in respect of such properties is exempt from CGT. Where the relevant property is disposed of after seven years from the time it was acquired, relief applies in the proportion that the period of seven years bears to the total period of ownership (for example, where it is sold after ten years, seven-tenths of the gain will be exempt.)

Separately, Capital Acquisition Tax (CAT) is a tax on gifts and inheritances. In the scenario set out above, the daughter will be eligible for an exemption from CAT if gifted the house, provided she qualifies as a 'dependent relative' and provided she has lived in the house for three years before the gift, has no interest in any other dwelling, and continues to live there for six years after the gift. (The condition to live in the house for six years after the gift would not apply if the daughter is 65 years or older).

For this purpose, a dependent relative is a direct relative of the donor, or of the donor's spouse or civil partner, who is permanently and totally incapacitated from maintaining himself or herself because of physical or mental infirmity, or who is over the age of 65. Marital status is not relevant.

Tax on grinds

Q I am a teacher who has earned some extra money through grinds over the last two months. The grinds were provided in a private capacity (that is, they were not part of my normal PAYE teaching job) and I made about €500. Is it possible for me to pay tax on that €500 through the PAYE system rather than having to file a separate tax return?

Pauline, Howth, Co Dublin

If you are a PAYE taxpayer and have additional income from other (non-PAYE) sources, which is below the threshold at which you are required to register for income tax as a self-assessed taxpayer (currently gross income of €30,000 or net profit of €5,000), you will need to declare the additional income on a tax return (Form12).

To pay tax on the additional income through the PAYE system, you must return this income for tax purposes. You can do this quickly and easily online by registering for myAccount atrevenue.ie. Once registered, you can submit the return by clicking 'Review your tax 2014-2017 (Form 12 or End of Year Statement (P21)' on the PAYE Services section and then selecting 'submit' for the Form 12 for 2017. If you exceed the threshold mentioned above, you are required to register as a self-assessed taxpayer for income tax and return your income under the self-assessment system using a Form 11.

Padraigh Donnelly is a manager in Revenue Commissioner's planning division (revenue.ie) with responsibility for developing and implementing Revenue compliance policy.

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