It is 2023, and numerous employees work from home, given the benefits. Working from home may result in a tax deduction for office-related expenses if you occupy a room in your home for purposes of trade. However, in addition to the general tests for deductions, strict requirements apply as follows:
- The room must be regularly and exclusively used for purposes of your trade;
- The room must be specifically equipped for the purposes of that trade; and
- If your remuneration consists of only a salary, your duties must be performed mainly in this part of the home. In other words, more than 50% of your duties must be performed in your home office;
- 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.
These requirements are onerous as it means that a bedroom with a desk or a kitchen table doubling as a laptop stand will not suffice. A room that is shared with another person with a different trade will also not be exclusively used for purposes of either person’s trade, and no deduction will be allowed.
SARS has taken a very narrow interpretation of the relevant provisions, and we recommend that you approach a tax expert should you be uncertain whether you comply with the requirements.
Which expenses:
The following expenses may typically be allowed as part of the deduction, however, should be apportionment based on the floor area, i.e. the room size in relation to the size of the entire house:
- rent of the premises;
- cost of repairs to the premises;
- rates and taxes;
- cleaning costs; and
- electricity.
The following items need no apportionment if they are solely and exclusively used in the office space:
- general wear and tear on items used for trade purposes in the office;
- office equipment, furniture and fittings, and repairs thereto;
- phones;
- internet; and
- stationery.
Capital gains tax implications:
For capital gains tax purposes, individuals qualify for a primary residence exclusion that provides relief when disposing of a primary residence. Where the property owner uses part of the property for commercial purposes (for example, as a home office), that part of the property is “tainted” and will not qualify for the primary residence exclusion.
On the sale of the property, the overall capital gain or loss must be apportioned between the “tainted” and “untainted” elements. The primary residence exclusion will apply only to the “untainted” portion of the capital gain or loss.
It is important to be mindful of the fact that a claim for home office deductions will, therefore also impact your capital gains tax calculation on the sale of the property.
Practically:
Should you qualify and wish to claim the deduction, the amount should be entered on your IRP12. You must also retain sufficient proof and keep supporting documents to support the deduction. This would include the following:
- A letter from your employer stating that the taxpayer may work from home, dates worked at home, the reason for doing so, and whether or not an office is provided at the employer’s premises;
- A schedule of your home office expenses supported by invoices and proof of payment;
- A calculation showing how the amount was arrived at and the apportionment;
- Floor plans of your house; and
- Photos of your home office (these should provide evidence that it is specifically equipped and used exclusively for your trade).