What is home office expenses?
Home office expenses are those expenses that relates to a person using an office to work from at his place of residence. SARS allows some of the expenses relating to your home to be tax deductible on your personal tax return in certain circumstances.
Are there special rules regarding COVID?
There are no specific rules, or relaxation of the SARS requirements, due to the fact that people are required to work from home due to COVID regulations.
Who can claim home office expenses?
An employee, that works from home (not necessarily full time), and has set aside a room to be occupied for the purpose of a trade as defined by the Income Tax Act (e.g., employment or running a business), may claim certain expenses.
If the employee’s income is only salary, more than 50% of your duties must be performed in your home office.
If more than 50% of your income relates to commission or variable payments based on your work performance, then more than 50% of those duties must be performed outside an office provided by your employer. Unlike in the case of salaried employees, more than 50% of your duties are not required to be done in your home office, as long as it is not done at your employer’s office. This is typically applicable to sales employees who are often on the road to see clients.
What are the requirements to claim home office expenses?
The room must be regularly and exclusively used for the trade, and it is specifically set up for that purpose. This is a very clear distinction and therefore the following will not qualify:
- Living areas, kitchen, bathroom, and passages
- Dual purpose rooms e.g., spare bedrooms with a spare bed.
- “Play” rooms that are also used for social activities.
- Patios, pyjama lounges, study nooks in an open area, etc.
What are typical expenses that can be claimed?
The following expenses should be claimed on a pro-rata basis (typically based on square meters):
- Rent, general repairs, rates and taxes, utilities, cleaning, and gardening.
The following expenses are often 100% claimable for tax purposes. However, this is dependent on a taxpayer’s specific situation, and it is advised that you obtain professional advice in this regard:
- Phone, internet, stationery, office equipment and expenses specifically applicable to the running of the office.
What are typical pitfalls if you wish to claim home office expenses?
The burden of proof of the cost incurred remains on the taxpayer. Therefore, the taxpayer should keep proof of expenses incurred. This should be kept to submit to SARS should they decide to perform an audit after the tax return have been assessed. Since these expenses are typically private (e.g., repairs invoices) taxpayers are not used to keeping these for tax purposes.
If you are required to work from home, and perform your duties from home, but don’t have a dedicated room, but use a general space then you do not qualify to claim expenses. Therefore, taxpayers who live in a one bedroom unit will have difficulty in proving that they have a dedicated room to be used that is set aside for this purpose and not used for other purposes as well.
What are the potential negative tax implications?
If a taxpayer claims a tax benefit on his primary residence, this will be taken into account when applying the R2million capital gains exclusion when the taxpayer sells his primary residence. The R2mil exclusion will be reduced, and this may lead to a taxpayer having a capital gains tax liability on the sale of his primary residence.
The claiming of home office expenses usually does not have a major impact on a taxpayer’s taxable income, although it is a valid way of reducing your tax liability. Taxpayers should be aware of the relevant requirements as well as the long-term tax implications. PPHC Global will assist you in making sure you take the best long term decision, and also adhere to the relevant applicable laws. Please contact us for assistance in this regard. We’ve got this!