In 2021 many salaried employees submitted claims for their home office and were in some instances not successful with their claims. The onus is on the taxpayer to prove or convince SARS that the expenses are in fact deductible.
Despite the COVID-19 pandemic, there have been no changes to the legislation as relates to an income tax deduction for home office expenditure. The legal requirements remained the same as before the COVID-19 pandemic.
The Requirements to qualify for home office expenditure are as follows – For employment to constitute a “trade” and to qualify to deduct home office expenditure, the taxpayer should prove that the home office:
- Is specifically equipped for this purpose. It must be equipped with the tools and equipment required to render the trade (desks, chairs, computers, printers, trade-specific equipment, etc.). (A lounge, living room or empty unoccupied room will unfortunately not qualify as a home office.)
- The home office must be used regularly and exclusively for the purposes of your trade. (The odd email over a weekend is not sufficient and the space may not be used for alternative purposes.)
- Your duties must be mainly performed in this part of your home. More than 50% of the taxpayer’s duties must be performed in your home office. The Income Tax Act does not prescribe whether this refers to time or volume of work, but it is generally accepted as the total working time.
What types of expenses may qualify as home office expenditure?
There is no exhaustive list in respect of the allowable expenses, generally, the following expense will qualify:
- Rent
- Interest on the bond
- Cost of repairs as relates to the home office
- Rates and taxes
- Electricity
- Cleaning, and wear and tear
How is the deduction calculated?
Since only a portion of the premises that is occupied by the taxpayer is used to perform the work duties, an apportionment must be made:
A/B x total costs
Where A = the area in m² of the area equipped and used regularly and exclusively for trade; and
Where B = the total area in m² of the residence, including any outbuildings and the area used for trade.
Note that expenses that do not relate to the premises (such as wear and tear on equipment and furniture) do not need to be apportioned based on floor area.
Although not specifically prescribed, SARS provides the following helpful guidelines to assist taxpayers to discharge their burden of proof when claiming a deduction for home office expenses:
- There must be a direct relationship between expenses incurred and the production of income.
- The taxpayer must provide SARS with an employment contract or letter from their employer confirming the use of a home office. (It must stipulate the reason why the taxpayer is required to perform work from home as well as whether an office is provided at the employer’s premises.)
- If the employer offers a workplace office that is at the taxpayer’s disposal, full details regarding any restrictions concerning the use of this office must be stipulated in the letter from their employer.
- If the taxpayer is expected to work at home after hours, full details on the frequency of use thereof are also required from their employer.
- A schedule of the home office expenses must be submitted to SARS. SARS may request the submission of all the relevant receipts.
- Photographs of the dedicated and specifically equipped area should also be submitted.
- A copy of at least 1 utility bill that indicates the physical address of the home if a physical inspection is deemed necessary by SARS.
Note that the amounts claimed as home office expenses must be declared next to the code 4028 on the taxpayer’s ITR12 return.
A cautionary note:
If you sell your primary residence and you have previously claimed a deduction for home office expenses, it will influence the primary residence exclusion available to taxpayers.