Due to the COVID-19 pandemic that started early in 2020, we have seen a large paradigm shift in employers allowing – and in some cases requiring – employees to work from home. This has invariably allowed many employers to downscale on expenses such as leased office space, without seeing dramatic reductions in productivity if any at all.
Employees too have seen savings in both time and fuel expenses over this period and have gone through great lengths to set up comfortable and functional home offices. In the 2022 Tax Filing Season, SARS saw a dramatic rise in the amount of Taxpayers submitting claims on their IT12 Personal Income Tax Returns for Home Office Expenses.
When we reference The Income Tax Act 58 of 1962, specifically section 11(a), as well as sections 23(b) and 23(m), we find that Home Office Expenses can be claimed under the following circumstances:
- If the room is regularly and exclusively used for the purposes of your trade, e.g. employment; and is specifically equipped for that purpose. The Home Office must therefore be set up solely for the purposes of your trade; and
- If your remuneration consists only of a salary and similar remuneration, your duties must be mainly performed in this part of the Home. It therefore means you must perform more than 50% of your duties in your Home Office; or
- If more than 50% of your remuneration consists of commission or variable payments based on your work performance, more than 50% of those duties must be performed otherwise than in an office provided by your employer.
Typically, the types of home office expenditure referred to in section 23(b), are those that are closely linked to the premises, namely:
- rent of the premises and interest on your bond installment (from the 2023 Tax Year, interest on your bond installments are no longer included as an allowable expense);
- cost of repairs to the premises; and
- expenses in connection with the premises, which could include:
- rates and taxes;
- cleaning costs; and
Other typical expenditure that may qualify for a separate deduction in respect of maintaining a home office, include:
- general wear and tear on items used for trade purposes in the office;
- office equipment, furniture and fittings, and repairs thereto;
It should be noted that SARS has recently issued Statements that exclude fixed line internet services as Home Office Expenses. The claiming of telephone and data costs are only allowed if the Taxpayer derives the majority of their earnings from Commission-based payments, and it can be shown that those costs were due to the earning of said Commission payments.
Home Office Expenses are calculated on the basis of apportionment, or in other words a percentage based calculation that takes into account the size of your dedicated workspace in relation to the total size of your home. Expenses such as office equipment, furniture and fittings and stationary do not follow this apportionment calculation, and if allowed can be claimed in full.
Home owners specifically should be aware that their Capital Gains Tax Primary Residence Exclusion of R2 000 000 will be proportionally affected by both the portion of your residence claimed against for Home Office Expenses, as well as the number of months or years you claimed the Home Office Expense for. In the long run, and especially if you sell your property for a value more than R2 000 000 over the initial purchase price, this amount of Tax due to the receiver could come to a substantial amount, possibly way in excess of the actual Home Office Expenses you claimed over the years.
SARS has also made it clear that any Taxpayer that claims Home Office Expense for the first time, will almost guaranteed be flagged for Audit. The audit includes but is not limited to having to submit photos of the Home Office space as well as Council Approved building plans of your property to establish whether your apportionment calculation is accurate, and invoices and receipts of expenses incurred. Individual Tax Audits could also potentially come with added expenses such as penalties and/or fees associated with obtaining assistance from a registered Tax Practitioner.
While SARS gives Taxpayers the option to claim Tax Deductible Expenses, it should always be noted that the other side of the scale is weighted with consequences in both the short and long term, and ultimately the Taxpayer should fully understand the pros and cons of any such claim to make a decision that is in their best interest.
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