Taxpayers who are salaried employees have limited deductions available to them. However, home office expenditure can be claimed as an income tax deduction, but the onus is on the taxpayer to prove and or convince SARS that the expenses are in fact deductible.
The Requirements to Qualify for Home Office Expenditure
Important to note, 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 therefor remain the same as before the COVID-19 pandemic, as will be discussed below:
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. The home office 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 not qualify as a home office.
- Is used regularly and exclusively for this purpose. The odd email over a weekend is not sufficient. Furthermore, the space being used for alternative purposes (as a children’s play area, study area or second bedroom) would also most likely disqualify the deduction.
- Is where more than 50% of the taxpayer’s duties are performed. 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?
Although the Income Tax Act does not provide a laundry list of allowable expenses, the following expenses generally qualify:
- interest on the bond
- cost of repairs as relates to the home office;
- rates and taxes;
- cleaning; and
How is the deduction calculated?
Since only a portion of the premises is used for work, the following apportionment should 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 only expenses relating to the premises must be apportioned based on floor area (such as for example rent, interest on bond, rates and taxes, cleaning, etc.). 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.
Guidelines: negotiating employment agreements requiring a home office
Although not specifically prescribed, SARS provides the following helpful guidelines:
- There must be a direct relationship between expenses incurred and the production of income.
- The taxpayer must, in terms of their employer’s service contract requirements, maintain a home office at his/her private residence.
- The home office may only be used for business purposes.
- A schedule detailing the following must be prepared and kept for five years should SARS request it:
- The nature of the occupation and why is it necessary to maintain a home office.
- A copy of the service contract, service regulations or personnel code.
- If the employer offers a workplace office which is at the taxpayer’s disposal. Full details regarding any restrictions concerning the use of this office and a confirmation letter from the employer should be supplied.
- If the work is of such a nature that the taxpayer is expected to work at home after hours. Full details on the frequency of use and a statement confirming the use thereof are required from the employer.
- If the taxpayer is required to use the home office to interview or supply information to clients or employees after hours.
- If the home office is specifically equipped for purposes of the trade.
- If the home office is used regularly and exclusively for the taxpayer’s work.
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 your home has been used for purposes of a trade (such as having a home office), it may influence the primary residence exclusion available to taxpayers on the sale of the residence for capital gains tax purposes.