Ernst & Young, one of Ireland’s major accountancy firms, has told online hospitality company Airbnb it believes the Revenue Commissioners are mistaken in saying the rent-a-room tax allowance does not apply to people who use the website to rent their properties to guests.
The Revenue has said earnings from renting out rooms on online sites such as Airbnb are fully liable for income tax, but the EY view, which Airbnb says is backed up by a senior legal opinion, is that the income should qualify for the rent-a-room relief.
Controversy has blown up in recent days, as it emerged that Airbnb was providing details of earnings made by people renting out rooms via its website – which it refers to as “hosts” – to the Revenue. The information provided goes back to May 1st, 2014.
Rental earnings
Airbnb said it was legally obliged to provide the information to Revenue, but said its advice remained that the hosts should qualify for the tax relief, which shelters the first €12,000 of rental earnings from income tax.
The EY view, a summary of which was published by Airbnb, says the tax relief applies to “residential accommodation”, which is not defined in the legislation. It states that, as the relevant section of the 1997 Act does not make any distinction about how long the accommodation was rented out for, the relief should include short-term lettings in someone’s home, such as those arranged through Airbnb. It quotes English case law to support its argument that the length of time of the letting should not be a factor.
Rent-a-room relief
EY’s advice was provided to the company, which has advised clients to take their own tax advice. However, the Revenue has made it clear that its view is different and that the rent-a-room relief does not apply because, in the case of short-term letting, “the visitors use the accommodation as guest accommodation, rather than for residential purposes”. This means the income is not seen as “rental” coming from a longer-term letting and thus does not qualify for the relief.
For people letting out rooms, the situation thus remains that the Revenue says tax is liable to be paid and that the relief does not apply.
It is not yet known whether any of the hosts using Airbnb or other websites will chose to mount a legal challenge, using the kind of arguments put forward by EY.
However as things stand, those renting out rooms through accommodation websites leave themselves open to facing Revenue penalties if they do not pay.
Aidan Byrne, a tax partner at accountancy firm Baker Tilly Ryan Glennon, said he can see the validity in both sides of the argument, given that the original legislation does not spell out that the relief applies only to longer-term lettings.
He said the Revenue’s case was based on a view that the hosts were involved in a “trade” similar to the owner of a bed-and-breakfast or a guesthouse and thus did not qualify for the relief, which had been designed originally for other purposes.
The Revenue information note on the issue, available on its website, says its view is that in such cases the guests are using the rooms “as guest accommodation rather than for residential purposes”.
Trading income
Therefore, it says, the rent-a-room relief does not apply, as the income is what it defines as trading income which, unlike rental income, does not qualify.
The relevant legislation is included in section 216A of the Taxes Consolidated Act, 1997. It specifies that the relief can only be claimed on rooms rented out in a person’s main residence, generally their home. The Revenue guidance specifies directly that the relief does not apply “ where the accommodation is provided through online accommodation booking sites”.
Even in cases where the rent-a-room relief does apply, people must include details of earnings from such rentals on their tax returns.
