The COVID-19 pandemic has caused great hardship and the lockdown, which was intended to mitigate its effects, has changed life as we know it.
There is also financial pressure on employers to reduce overheads which is relevant since many employees are required to work from home in order to reduce the spread of COVID-19.
The question now arises whether the expenses incurred as a result of working from home, can be claimed as a tax deduction against the income earned by employees in the 2020 – 2021 tax year?
Home office expenses will typically include rental paid in respect of your home (if you rent your home), rates and taxes, interest on the property bond, cost of repairs to the premises, cost of stationery, office equipment, cost of business calls made from your private home telephone, cleaning and other expenses in connection with the domestic premises, etc.
In addition, wear-and-tear allowances in respect of assets used for purposes of the home office may also qualify for a tax deduction.
As usual, seeing that we are dealing with the South African Revenue Service (SARS), the answer is not a simple yes or no.
SARS allows certain taxpayers who are natural persons to deduct their home office expenses from their taxable income provided that the requirements of the Income Tax Act no. 58 of 1962 are met.
Interpretation Note 28, issue 2 (issued in March 2011) provides additional guidance on the deductibility of home office expenses.
Section 23(b) of the Income Tax Act prohibits the deduction of domestic and private expenditure related to premises not occupied for trade of any dwelling, such as a house or domestic premise. Section 23(m) prohibits the deduction of expenditure related to any employment of a person in respect of which they derive any remuneration.
What requirements must be met for home office expenses to be deducted for tax purposes?
If you are required to work at home and you have set aside a room or part of your home to be occupied for purposes of your “trade”, you may be allowed to deduct certain home office expenses for tax purposes calculated on a pro-rata basis. A room or “part” of your home or dwelling will be considered to be occupied for the purposes of trade if both of the following requirements are met:
- Such part is specifically equipped for the purposes of your trade, namely your employment, profession, etc.; and
- Such part is regularly and exclusively used for the purposes of your trade.
Importantly, in addition to the above requirements, should the room/part of your home/dwelling meet the above requirements and you are a salaried employee, a tax deduction will only be granted to you in respect of your home office expenses if:
- the income from your employment or office is derived mainly (i.e. more than 50%) from commission or other variable payments and you do not perform your duties mainly (more than 50% of the time) in an office provided by your employer; or
- you mainly (more than 50%) perform your duties in your home office (i.e. that room/part of your home/dwelling that is occupied for purposes of trade). No deduction is allowed when salaried employees perform only some duties at home, but work mainly from an office provided by their employers (such as teachers, for example).
At this stage, taking into account the relevant legislation, relatively few employees (who earn salary income only or no / limited commission) would qualify to claim a tax deduction for home office expenses. Remember the onus of proof lies with the taxpayer.
In recent media articles, SARS has been quoted as saying “full-time employees can also claim if they work from home for at least six months of the tax year. This means that you would have to work from home at least until the end of September, if you left the office at the start of the national lockdown. If an employee’s duties are mainly performed from their home, they will be able to claim some expenses, a SARS spokesperson confirmed to Business Insider SA” [own emphasis added].
SARS has also highlighted the importance of the requirement that a home office must be a dedicated space/room used mainly and solely for this purpose to be regarded as a “home office” – a corner of your dining room table will unfortunately not be regarded as a “home office” for tax purposes.
Should any employees want to claim for “home office” expenses, the mandatory supporting documents (invoices, statements, proof of such payment) must be retained together with a schedule of the actual days spent working at home during the tax year. Any communications you have from your employer indicating changes in working conditions while under lockdown would aid in the justification of the claim – however, this would always be subject to SARS review and may be disallowed on assessment.
It is also very important to note that claiming a tax deduction for home office expenses may have capital gains tax implications when you sell your home. This is because any capital gain derived upon the sale of the property will be apportioned with reference to the extent to which the property was used for business purposes and the R2 million ‘primary residence’ exclusion (for natural persons and special trusts) will only be applied to the portion of your home relating to domestic use.
We trust that SARS will provide clearer guidelines in this regard closer to the 2021 income tax filling season.
If you have any enquiries, please contact Adri Britz at email@example.com
Income Tax Act no. 58 of 1962