Short-Term Tourist Rentals

In a recent decision, the Austrian Federal Finance Court (Bundesfinanzgericht, BFG) had to assess whether income derived from the short-term letting of two apartments to tourists via online platforms should already be classified as business income.

Facts of the Case

In 2019, two apartments with a total of six beds were rented and subsequently sublet to tourists on a short-term basis through online platforms. In addition to providing the accommodation itself, various ancillary services were offered. These included, in particular, final cleaning, laundering of bed linen, assistance to guests in the event of defects or problems, and the provision of information for tourists. The apartments were fully furnished. However, breakfast and other catering services were not provided.

The rental activity was discontinued in March 2020 following the outbreak of the COVID-19 pandemic.

The key issue in this case was whether the activity carried out in 2019 and until March 2020 constituted asset management or had already reached the level of a commercial business activity.

Background

One reason why landlords may seek to classify rental income as business income lies in the differing tax treatment. For example, business income may qualify for the profit allowance (Gewinnfreibetrag), and, depending on the circumstances, higher depreciation rates or additional business expenses may be deductible for tax purposes.

Decision of the BFG

The BFG clarified that the letting of real estate is, in principle, regarded as asset management. A commercial activity exists only where the nature and extent of the activity exceed what is ordinarily associated with the management of one's own assets.

When distinguishing between asset management and a business activity, particular importance is attached to the extent to which the activity goes beyond the mere granting of the right to use the property and whether the commercial character of the operation becomes the dominant feature.

Administrative work associated with renting out property, as well as any advertising measures that may be required, do not in themselves give rise to a commercial activity. Rather, additional circumstances must exist that result in activities extending beyond the mere provision of the property for use.

The BFG further emphasised that the assessment of whether an activity qualifies as a business activity must be based on the facts and circumstances of the respective tax year. A subsequent change in the actual circumstances may therefore result in a change in the classification of the income. However, such an assessment must be carried out separately for each tax period.

Conclusion

The BFG concluded that the short-term letting of the two apartments still constituted an asset management activity. Consequently, the income generated was to be classified as income from letting and leasing rather than business income.

The decision demonstrates that the short-term rental of apartments through online platforms is not automatically regarded as a commercial activity merely because certain ancillary services are provided. Rather, the decisive factors are the specific circumstances of each individual case, particularly the nature and scope of the rental activity and the extent of the services provided beyond the mere granting of the right to use the property.