Are Short-Term Rentals Considered a Business?
So, you want to make a bit of extra cash by renting your property but aren’t sure about the legality of the short-term rental industry. In most cities and destinations around the world, short-term rentals are considered to be businesses, as they are making the property owner, or landlord, money.
For many destinations, the short-term rental industry is exacerbating problems in the long-term rental industry, as landlords or homeowners can make better money from a short-term rental than they can by renting to long term residents. From the rules in different cities around the world, through to the penalties of operating an illegal short-term rental business, here’s the lowdown on short-term rentals and to what degree they are considered a business.
Short-term rentals are a great way of making extra money — and just by renting your property for a few nights in a month, you can make more than if you were to rent long-term. This is primarily why landlords and homeowners are opting to list their properties on short-term rental sites, such as Airbnb, HomeAway, and VRBO, as they can make much more money. However, short-term rentals are causing a lot of problems for locals looking to rent for reasonable prices, and it’s driving huge inflation in the rental market.
The extra money you can make from renting your home is considered a business in most countries. And many countries, therefore, require that the money is registered, accounted for, and taxed. Every destination is handling this differently, with some offering a ‘grace’ period whereby you can rent your home for a limited amount of time, without it counting as a business, and others destinations count any period of short-term rental as taxable money.
A large percentage of tourists traveling to top destinations want to stay in short-term vacation rentals, as opposed to hotels. This is because vacation rentals can work out a lot cheaper, they feel more like staying in a ‘home from home’, they have more privacy, and provide a more local experience. Many homeowners and landlords are stepping in to soak up the demand.
Cities and destinations all around the world have been clamping down on the short-term rental industry as it becomes increasingly difficult to control inflation for locals. Since the arrival of vacation rental sites such as Airbnb and VRBO, popular tourist destinations have been under pressure to implement strict restrictions on the short-term rental market.
Short-Term Rental Laws Around the World
Cities around the world are handling the short-term rental industry in different ways. We’ve taken a look at Hawaii, Toronto, Singapore, and New York:
To take Hawaii as an example, recently lawmakers in Honolulu passed legislation to make sure that the state is benefitting from Hawaii’s flourishing short-term vacation rental industry. Honolulu City Council passed tax-raising legislation whereby rental platforms are now responsible for collecting taxes on behalf of the homeowners listing their properties. Meanwhile, in other destinations around the world, the homeowner that is listing their property can be responsible for paying taxes, and many cities are requiring homeowners to have a short-term rental license if they wish to list their property.
If we look at Toronto as a second example, the Canadian press recently ran several stories on the fact that Toronto has announced a series of proposed regulations for short-term rentals. A short-term rental will be defined as a period of fewer than 28 days and short-term rentals will only be permitted in primary residences, which means hosts are only allowed to list one property for short-term rental. This means that landlords and homeowners who own multiple properties cannot rent a second property (or further properties) for a ‘short-term’ period. There are also proposed rules that a homeowner can only rent their property as a short-term rental for 180 days in a calendar year in total. Income gained from the short-term rental is considered rental income by the Canada Revenue Agency and therefore must be taxed like any other rental income. So for the city council in Toronto, they really see short-term rental as a business.
In Singapore, it’s illegal to list properties for a rental period of fewer than three months. These strict regulations are imposed to stop people from operating illegal businesses in the short-term vacation rental industry. As a result, it’s almost impossible to operate a short-term rental business in Singapore.
New York City
Meanwhile, in New York City, it’s illegal to rent an apartment or condo there for less than 30 days, with very few exceptions to this rule, so it’s difficult to even operate a short-term rental business. For rental periods that are longer than 30 days, the rate of tax depends on a variety of factors.
With many people continuing to list their property regardless of the rules, cities are clamping down on those that are running an illegal short-term rental business through Airbnb and similar vacation rental platforms. For many homeowners and landlords, the risk of being caught is worth the amount of money that you can make through short-term rentals. Many people also look for loopholes or list on Facebook or platforms such as Craigslist that aren’t regulated to the same degree as platforms like Airbnb and HomeAway. There are plenty of stories in the news about people that have violated short-term rental laws, and been operating a business illegally. Do not be one of these people — always stick to legal channels.
Every city in the world is handling the short-term rental market in a different way, however, something most destinations have in common is high penalties including huge fees and the chance of a jail term. In San Francisco, for example, the fine is $484 dollars per day if you’re operating an illegal short-term rental. For repeat offenders in many cities, the penalty is a jail term.