Insights
TAX & BUSINESS
Short‑term tourist rentals
The distinction between income from a trade or business and income from renting and leasing is often not clear in the case of short‑term rentals.
In a recent ruling, the Federal Fiscal Court (Bundesfinanzgericht, BFG) had to decide whether the income from the short‑term rental of two apartments to tourists via online platforms should already be classified as commercial income.
Facts
In 2019, two apartments with a total of six beds were let and sublet on a short‑term basis to tourists via online platforms. In addition to the provision of the apartments, various ancillary services were provided. These included, in particular, final cleaning, laundry washing, assistance to guests with ailments and the provision of information for tourists. The apartments were fully furnished. Breakfast or other catering services were not offered. With the onset of the COVID‑19 pandemic in March 2020, the rental activity was discontinued.
In the present case, the question was whether the activity in 2019 and up to March 2020 should be regarded as asset management or already as a commercial activity.
Background
The reason why rental income may be declared by the landlord as income from a trade or business often lies in different tax approaches: for example, income from a trade or business may allow the profit exemption to be applied, or higher depreciation rates or other operating expenses may be deductible.
Decision of the BFG
The BFG clarified that the rental of a property is fundamentally to be assigned to asset management. A commercial activity only exists when the activity, by its nature and scope, exceeds the level that is normally associated with the management of one's own assets. The key criterion for the distinction is, in particular, the extent to which the activity goes beyond the mere provision of the property and thereby brings the commercial character to the fore. The administrative work involved in a rental and any advertising measures required do not, by themselves, constitute a commercial activity. Rather, special circumstances must arise that create activity beyond the simple handing over of usage rights.
Furthermore, the BFG stated that the assessment of whether a commercial activity exists must be made based on the circumstances of the relevant year. A later change in the actual circumstances can therefore lead to a change in the type of income, but this must be assessed separately for each tax period.
Conclusion
The BFG concluded that the short‑term rental of the two apartments was still to be classified as an asset‑management activity. The income generated was therefore to be allocated to rental and leasing.
The ruling demonstrates that the short‑term rental of apartments via online platforms is not to be classified as a commercial activity solely because of a few ancillary services. The decisive factor is the specific circumstances of each case, in particular the nature and scope of the rental and the extent of services that go beyond the mere provision of usage rights.
Facts
In 2019, two apartments with a total of six beds were let and sublet on a short‑term basis to tourists via online platforms. In addition to the provision of the apartments, various ancillary services were provided. These included, in particular, final cleaning, laundry washing, assistance to guests with ailments and the provision of information for tourists. The apartments were fully furnished. Breakfast or other catering services were not offered. With the onset of the COVID‑19 pandemic in March 2020, the rental activity was discontinued.
In the present case, the question was whether the activity in 2019 and up to March 2020 should be regarded as asset management or already as a commercial activity.
Background
The reason why rental income may be declared by the landlord as income from a trade or business often lies in different tax approaches: for example, income from a trade or business may allow the profit exemption to be applied, or higher depreciation rates or other operating expenses may be deductible.
Decision of the BFG
The BFG clarified that the rental of a property is fundamentally to be assigned to asset management. A commercial activity only exists when the activity, by its nature and scope, exceeds the level that is normally associated with the management of one's own assets. The key criterion for the distinction is, in particular, the extent to which the activity goes beyond the mere provision of the property and thereby brings the commercial character to the fore. The administrative work involved in a rental and any advertising measures required do not, by themselves, constitute a commercial activity. Rather, special circumstances must arise that create activity beyond the simple handing over of usage rights.
Furthermore, the BFG stated that the assessment of whether a commercial activity exists must be made based on the circumstances of the relevant year. A later change in the actual circumstances can therefore lead to a change in the type of income, but this must be assessed separately for each tax period.
Conclusion
The BFG concluded that the short‑term rental of the two apartments was still to be classified as an asset‑management activity. The income generated was therefore to be allocated to rental and leasing.
The ruling demonstrates that the short‑term rental of apartments via online platforms is not to be classified as a commercial activity solely because of a few ancillary services. The decisive factor is the specific circumstances of each case, in particular the nature and scope of the rental and the extent of services that go beyond the mere provision of usage rights.