Work From Home - OFFICE EXPENSES: What Can I Deduct from Tax?
Tax practitioners have been inundated with queries from clients on the possible relief offered by the South African Revenue Service ("SARS") on the possibility of deducting from their taxable income home office expenses due to the shift in working policies by many employers.
SARS recently hosted a webinar on the matter (the summary of which is available on the SARS website).
Below, we explore the most pertinent matters.
When will I be able to claim home office expenses?
If you are an employee who works from home and have set aside a room to be occupied for the purpose of "trade" (i.e. work activities), you may be allowed to deduct certain home office expenses for tax purposes calculated on a pro-rata basis.
What are the requirements for claiming home office expenses?
Section 23(b) of the Income Tax Act states that a tax deduction for home office expenses is only allowed when the following criteria are met:
- If the room is regularly and exclusively used for the purposes of the taxpayer's trade and is specifically equipped for that purpose. The home office must be set up solely for the purpose of working.
- If the employee's remuneration is only salary, the duties are mainly performed in this part of the home, meaning the employee must perform more than 50% of their duties in the home office.
- Where more than 50% of the employee's remuneration consists of commission or variable payments based on work performance, and more than 50% of those duties are performed outside of an office provided by your employer.
What constitutes home office expenditure?
Typically, the type of home office expenditure referred to in section 23(b) is as follows:
- Rent of the premises;
- Cost of repairs to the premises; and
- Expenses in connection with the premises.
In addition to these expenses, other typical home office expenditure that may qualify for deduction in terms of section 23(m) include:
- Phones;
- Internet;
- Stationery;
- Rates and taxes;
- Cleaning;
- Office equipment; and
- Wear-and-tear.
How do I calculate home office expenses?
The tax deduction is calculated for the area of the home utilised for trade e.g. employment purposes. Home office expenses relating to the premises are calculated on a pro-rated basis (square metres of the home office space versus total square meters of your home).
What is the method of calculating home office expenses?
Should you qualify for a deduction in respect of home office expenses, the amount must be calculated on the following basis: A / B x total costs, where:
- A = the area in m² of the area specifically equipped and used regularly and exclusively for trade
- B = the total area in m² of the residence (including any outbuildings and the area used for trade in the residence)
- Total costs = the costs incurred in the acquisition and upkeep of the property (excluding expenses of a capital nature).
Where will I claim home office expenses on my Income Tax Return (ITR12)?
Should you qualify for a deduction in respect of a home office, enter the amount calculated next to the source code 4028 (Home Office Expenses) in the "Other Deduction" field on your Income Tax Return.
I want to complete the home office expenses but it does not reflect on the form wizard questionnaire.
When completing the form wizard on the Income Tax return (ITR12), answer the question "Did you incur any expenditure that you wish to claim as a deduction that was not addressed by the previous questions?" (Select 'Y' or 'N'). If yes, the section for 'Other Deductions' will be added to the return.
If you require any assistance with claiming your home office expenses this tax season, or have any further questions about your tax returns, get in touch with our team of expert tax specialists to assist you.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).