Working from home and claiming for home office deductions?
You could be eligible to claim for home office expenses if
You are an employee who works from home and has set aside a room to be occupied for the purpose of employment. Provided that you meet the requirements set by SARS, you may be allowed to deduct certain home office expenses for tax purposes calculated on a pro-rata basis.
Since working from home has become far more prevalent, SARS anticipated an influx of these claims and confirmed that they will work hard to detect non-compliance. It is their intention to give the honest taxpayer a seamless and pleasant experience, but for the dishonest or negligent taxpayer it will be hard and even costly if they are non-compliant.
What are the requirements that need to be met?
To qualify to claim home office expenses, SARS has set out four requirements that need to be met:
Empoyer Letter
The employer must allow the employee to work from home i.e employee must have a letter from the employer stating such.
Updated Details & Equipment
You must ensure your company details are up to date.
The office must be specifically equipped for the employee’s trade, i.e., it must be specially fitted with the relevant instruments, tools, and equipment required for the employee to perform his or her work.
Designated Area
The employee must have an area of their home which is used exclusively for this purpose. For example, employees who meet clients in their dining room at home would not qualify. A separate office, which is used specifically for the employee’s work, must be maintained to qualify for the deduction.
If you are still unsure about the requirement criteria, SARS published a very user-friendly questionnaire that can be accessed here:
What expenses can be deducted?
Firstly, one needs to look at the taxpayer’s remuneration structure to see whether he/she:
– is a “commission earner” i.e. takes more than 50% of their total remuneration from commission or some other variable form which is based on their work performance or,
– is a normal salaried employee with variable payments/commission making up less than 50% of their total remuneration.
The first group (i.e. “commission earners”) can deduct rent, interest on bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house as well as other commission related business expenses (e.g. internet, telephone, stationery, repairs to printer etc.).
The second group (i.e. salaried employees with variable payments/commission making up less than 50% of their total remuneration) can deduct rent, interest on bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house only.
How to calculate the home office deduction
One needs to work out the total square meterage of the home office in relation to the total square meterage of the house, and then convert this to a percentage.
One then applies this percentage to the home office expenditure in order to calculate the portion, which is deductible.
What constitutes home office expenditure?
Section 23(b)
Typically, the type of home office expenditure referred to in section 23(b), namely:
- rent of the premises;
- cost of repairs to the premises; and
- Expenses in connection with the premises.
Section 23(m)
In addition to these expenses, other typical home office expenditure that may qualify for deduction in terms of section 23(m) include:
- Phones;
- Internet;
- Stationery;
- Rates and taxes;
- Cleaning;
- Office equipment; and
- Wear-and-tear.
Generally, relatively few employees who earn a salary income only, or no/limited commission income, would qualify for a tax deduction for home office expenses. You should therefore only claim such a tax deduction if you are able to demonstrate to SARS that you have met the above requirements.
SARS advises individual taxpayers to carefully consider any claim for home office expenses before filing their Income Tax Returns. Taxpayers who claim the deduction, and especially those who claim it for the first time, will be subjected to an audit. Non-compliers will be detected and will not qualify for the deduction.