It has become common in recent times for employers to require or permit employees to work from home after the lockdown regulations came into effect due to Covid-19.
Such arrangements could be temporary or may have a degree of permanency. Persons in employment or persons holding an office may therefore wish to claim a deduction for certain expenses incurred concerning a home office.
No Change in Legislation
SARS has not changed any rules, the guidance on home office expenses is legislation that has always been in place, however, they recently issued Interpretation Note 28 (still in draft). This places tougher restrictions on the home office claims. Our earlier article explains what constitutes as home office expenditure and in addition to these expenses, what other typical home office expenditure may include.
There are a few definitions that should be taken note of which may influence your deduction claim. These include:
Must be occupied for purpose of trade
The part of the home in respect of which a deduction is claimed must be occupied for the purposes of trade, which includes employment. The area of the home may not be used for any other purpose than that of the trade.
Specifically equipped for purpose of trade
SARS requires that the part of the home must be fitted with the instruments, tools and equipment required to conduct that trade. This may include tools specific to trade (i.e. for doctors rooms or architects) or a workstation with a chair and computer.
Regular AND exclusive trade use
The part must be regularly and exclusively used for purposes of the trade.
Each case will have to be decided on its own merits. When the space is only used occasionally, such as over weekends, it will not constitute as “regular”.
Exclusively will mean that the part used for trade may not be used for any purpose other than the taxpayer’s trade. For this reason, it is submitted that taxpayers will have great difficulty satisfying the burden of proof that the part was used exclusively for purposes of trade if the part does not constitute a separate room in the premises.
Trade constituting employment
The restriction depends on whether or not the income from employment that the employee receives constitutes mainly commission.
Commission earners are defined as those earning more than 50% of their income from commission or other variable payments based on work performance. The employee’s duties may also not be performed mainly in an office provided by the employer (more than 50% of the time).
Non-commission earners are those who do not earn mainly commission and their duties are performed mainly (more than 50% of the time) at their private premises occupied for purposes of trade. This will exclude those who perform their duties mainly at clients’ premises.
There is a further requirement that the employee’s duties “are mainly performed in such part” which implies that the employee performed more than 50% of the employment duties in such part. Whether or not the employer requires the employee to perform the employment duties mainly at home is not the test.
It is for employees to prove on a balance of probabilities that more than 50% of their duties were performed in the home office. Employers often issue letters to employees confirming that they performed their duties mainly in a home office. SARS is unable to accept such letters. An employer is ordinarily only able to confirm –
- That the employee is permitted under the employment agreement to render employment services away from the employer’s premises; and
- That the employee was not present at the employer’s premises for a particular number of days.
It is not within an employer’s knowledge to confirm whether or not the employees performed their duties in the home office.
Audits On Claims
In anticipation of the influx of home office deductions, SARS is on high alert. It is almost a given that if you claim for this deduction, it will trigger an audit and they will request additional supporting documents, especially if you are claiming for the first time.
The onus of proof will be on the employee. SARS will want proof that the claim is valid and true so all relevant supporting documents must be kept as well as the calculations that were used for the claim. Ultimately it is up to employees to decide whether the tax benefits outweigh the admin that comes with this claim and if they do, they will need to proceed with caution. It is also advisable that they seek guidance from a registered tax practitioner before submitting their tax returns.