South African Revenue Services previously allowed home office expenses to be deducted when determining taxable income when taxpayers primarily earn commissions or are independent contractors and freelancers.
However, due to Covid-19, the work environment has been forced to make certain changes faster.
“Many employees have had to work from home either full-time or part-time,” said Elizabete Da Silva, EY general manager for People Advisory Services.
“With the shift in work culture and remote working, the question has been raised by South African taxpayers of whether they can claim a deduction from home office expenses as wage laborers.”
Under normal working conditions
The situation is different for salaried employees, who have to meet the following strict requirements in order to be able to claim the costs for the home office.
- The portion of the home, that is, the office space that is being claimed, must be occupied for the purposes of a trade (including employment).
- The manned office must be specially equipped for commercial purposes, e.g. B. for home study, with a desk, computer, etc.
- The employee must use the office regularly and exclusively for business purposes, ie it must not be used for private purposes. If an employee does not have a separate study or office at home, home office expenses will not be deducted.
- Employees who do not earn a commission, but who spend most of their time on the street visiting customers, perform their duties primarily with their customers and are therefore not entitled to any deduction.
- The main part of the employee’s tasks, ie more than 50%, must be carried out in their home office.
- The employer must allow the employee to work from home.
It’s not difficult to prove that a home office expense meets the Income Tax Act (ITA) requirements, unless the expense is capital in nature. This applies regardless of whether the taxpayer is employed or holds an office or another taxpayer.
Qualified expenses under Covid work from home
Regular salary employees are entitled to work from home, but are limited to the following pro-rata costs:
- Rent the premises;
- Interest on a bond;
- Costs for repairs to the premises;
- Prices and taxes;
- other expenses in connection with the premises;
- Office equipment; and
How to calculate your deduction
- Calculate the area of your home office as a percentage of the total area of your home office.
- Apply this percentage to the total expenses for the house, e.g. B. Rent, loan interest, water and electricity, prices and taxes, maintenance.
- Add other allowable outputs, such as: B. Stationery, wear and tear, etc.
- Make sure that the calculation is available for the SARS inspection along with all supporting documents (invoices, bond declaration, municipal invoice, rental agreement, etc.).
Effects of Capital Gains Tax (CGT)
“When you sell your house / main residence, one person is entitled to the so-called exclusion of the main residence. This exclusion can be used to offset capital gain / loss on the sale up to a value of R2 million, ”said Da Silva.
If part of your home is used for commercial purposes (i.e. a home office) and a commercial expense allowance is claimed, that part of your home is considered tainted for capital gains tax purposes.
When selling your home, all of the capital gain / loss must be split between the stained and unsullied elements. This breakdown is done taking into account the portion of the home that is used for business / commercial purposes and the applicable time period that is claimed.
The main residence exclusion can only be offset against the unsullied portion of capital gain / loss, and the tainted portion of capital gain must be fully accounted for.
“In its most recent budget address, the National Treasury Department commented that, given the significant home churn over the past year, it will review current travel and home office allowances to examine their effectiveness and fairness in applying them,” said Da Silva.
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