The new coronavirus has forced many companies to allow their employees to work from home. This may save costs for the employer, but it does pass them on to the employee.
JustMoney spoke to Corne Welman, head of compliance at payroll and HR management software provider, PaySpace, to find out if you’re eligible to claim for home office deductions if you’ve started working from home because of the pandemic.
Tip: Use our tax calculator to calculate your income tax.
Understand home office expenses tax rules
It’s worth understanding the tax rules around home office expenses as the South African Revenue Service (SARS) may allow employees to deduct their home office costs within the “Other Deductions” section of the ITR12. It’s important to realise though, that this deduction is only allowed under certain specific conditions, says Welman.
The ITR12 or Income Tax Return is a form that SARS requires all individuals to complete and submit to SARS once a year. The form is used to declare your income and expenses so that SARS can calculate how much tax you need to pay, or alternatively how much SARS needs to refund to you.
According to Welman, this process doesn’t apply to sole proprietors or freelancers who work from home.
“These taxpayers can automatically deduct all their home office expenses. They will reflect this under the relevant portion of home office expenses within the ‘Local Business, Trade and Professional Income’ section of their ITR12, says Welman.
The process for the rest of us is a bit more rigid or not as easy. The legislation relating to home office expenditure that a taxpayer may claim has been periodically amended since 1990, he says.
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What constitutes home office expenditure?
According to interpretation note number 28 Issue 2, home office expenditure will typically be the type of expense referred to in section 23 (b), namely:
- Rent of the premises;
- Interest on bond;
- Cost of repairs to the premises; and
- Other expenses in connection with the premises.
In addition to these expenses, other typical home office expenditure may include:
- Phones;
- Stationery;
- Rates and taxes;
- Cleaning;
- Office equipment; and
- Wear-and-tear
What requirements do you need to meet to claim?
According to Welman, to qualify for a deduction you need to make sure you read section 11 (a) and (d) of the Income Act which states that you can claim for:
(a) Expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature.
(d) Expenditure actually incurred during the year of assessment on repairs of property occupied for the purpose of trade or in respect of which income is receivable, including any expenditure so incurred on the treatment against attack by beetles of any timber forming part of such property and sums expended for the repair of machinery, implements, utensils and other articles employed by the taxpayer for the purposes of his trade.
“Together with the above section you also need to understand what section 23 (b) explains regarding the requirements. An expense must still meet the requirements of section 23 (b) even though it meets the requirements of section 11 as given above and is allowed under section 23 (m),” says Welman.
The requirements of section 23 (b) are as follows:
- The employer must allow the employee to work from home
- The part of the home in respect of which a claim is submitted must be occupied for purposes of a “trade”, trade being “working”, or doing business.
- The part that is occupied must be specifically equipped for purposes of the trade. For example, taxpayers who meet customers at their homes would not be permitted a deduction under the home office definition if they meet their customers in their dining or sitting rooms. A separate office would need to be equipped and maintained. An office that requires specialised equipment, such as a mechanic’s tools, an architect’s drawing board or a doctor’s examination room equipment, must be equipped with these items.
- The part, or office must be regularly and exclusively used for purposes of the trade. It’s not possible to define what would be acceptable to SARS as regular usage for the purposes of trade, as each case will have to be judged on its own merits. However, a home office that is maintained and is only used occasionally, for example, once on a weekend due to the taxpayer maintaining separate business premises, is not used frequently enough to constitute “regular” use. As regards the requirement of exclusivity, this provision requires that the office used for business may not be used for any purpose other than the taxpayer’s trade. A deduction is not permitted where it is evident that the taxpayer conducts any activities of a private nature in the office used for trade, such as permitting children to use the room as a playroom.
- The nature of the trade must be employment or the holding of an office. This means that the income derived from this trade must be mainly commission or other variable payments which is based on the taxpayer’s work performance. The taxpayer’s duties must also mainly be performed in the office of the private premises occupied for the purposes of trade.
How do you claim?
According to Welman, you need to work out the total square meterage of the home office in relation to the total square meterage of the house, and then convert this to a percentage. You must then apply this percentage to the home office expenditure in order to calculate the portion, which is deductible.
He gives the following example:
“My home office is 20 square meters in relation to my house of 200 square meters. Therefore, my square meterage percentage will be 20/200 = 10%. You will then add all your qualified expenses together and multiply this by the square meterage percentage to get to the allowable amount for the deduction”
This amount is then captured on the ITR12 for home office expenditure under the “other deductions” section, says Welman.
SARS often requests supporting documents from taxpayers to back up their home office deductions. As a taxpayer, you must be aware that you have to submit scanned copies of invoices, as well as all relevant calculations to substantiate the percentage of home office expenses claimed.
Welman says you must also ensure that the supporting documents can easily be reconciled with the home office claim on your ITR12. If the backup is unclear or insufficient, SARS will disallow the deduction altogether.
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