Working from home during lockdown and possibly beyond, has various advantages – including a possible tax benefit
WORDS: MARANA BRAND – IMAGE: SHUTTERSTOCK
Most businesses in South Africa recently had to adopt new approaches to how they operate, which means thousands of employees are now working from home and will continue to do so for the foreseeable future.
This has created an opportunity for many employees who did not previously claim home office expenses as tax deductions, to do so for the 2021 tax year (1 March 2020 to 28 February 2021) in particular – and possibly going forward – if working arrangements move away from offices and more towards remote working.
“The good news is that there’s indeed a claim for so called ‘home office expenses’ where one meets the requirements; however, this is limited in the case of an employee,” says Thomas Lobban, tax associate and registered tax practitioner, Tax Consulting South Africa.
The South African Revenue Service (SARS) allows certain individual taxpayers to deduct their home office expenses from their taxable income, provided that the requirements of the Income Tax Act are met.
The general rule for deductions
The principle in our tax law according to which home expenses like rent or mortgage interest, insurance, utilities, telephone and internet costs etc can be deducted if someone operates a business from home or generates additional income from home, is well established.
“Whether this principle also applies in the present remote-working environment amid the lockdown seems to be less certain,” says Sanet van Zyl, legal and corporate advisory manager, SERR Synergy.
The general rule is provided in section 11(a) of the Income Tax Act and states that employees (people who are working full time for someone else) and those who are self-employed and generally working from home, may be able to claim a deduction for expenses to reduce their overall tax liability, but only if those expenses are incurred while the taxpayer is generating an income or physically doing the work, says Lobban.
However, section 23(b) of the Act excludes the deduction of “domestic or private expenses”, which means that the circumstances in which one can claim a deduction in this regard are limited, especially in the case of an employee.
When does one qualify?
Having a dedicated home office may allow you to claim a tax deduction from SARS if you are a full-time employee who spends more than half your working hours in your home office, a commission earner whose employer does not provide you with an office, or a small business owner or freelancer who always works from home.
However, the work space in one’s home should be allocated solely for work purposes, such as a study, and should be used regularly and exclusively for business or work purposes. This requirement will not be satisfied where, for example, one works at the dining room table or has a desk in the main bedroom. “This will apply irrespective of the person’s trade, for example whether they’re a sole proprietor, freelancer or employee,” Lobban says.
In other words, a full-time employee will be able to claim a deduction for their home office expenses if they work from home for more than six months out of the year of tax assessment (at least 187 days).
“So if lockdown in South Africa is counted from April 2020, this means that the deduction will only be available to those full-time employees working from home until at least October,” Lobban explains.
Section 23(m) of the Act limits the amounts that may be claimed by ordinary full-time employees somewhat further and determines that employees (other than commission-based earners) may only deduct very specific amounts, which include pro-rated deductions based on rent, interest on a mortgage bond, repairs to the premises, rates and taxes, cleaning, wear-and-tear, and all other proportional expenses relating to their house.
An ordinary employee may not deduct expenses relating to telecoms and stationery, for example, says Lobban.
This means that the amount deductible as a home office expense is determined by the percentage of your house that is used exclusively for office space in relation to the total home area.
“If the home’s total area is 1,000m2 and the work area is 100m2, 10% of the qualifying home office expenses will be allowed as a tax deduction. Divide the total usable area of your home by your work area to arrive at your percentage,” explains Van Zyl.
“Full-time employees who have been working from home during the lockdown but might not qualify under the circumstances listed above, for example in terms of designated office space or a period of more than six months, should be able to apply the home office tax deduction in the next tax submission as SARS may be lenient given that such employees might not have had sufficient time to arrange proper designated areas,” says Van Zyl.