With a large portion of employees working from home during the lockdown, many people have asked the question of whether, and how, they can benefit from personal tax deductions in respect of working from home.
Up to date, there were no announcements in terms of any special relief provisions for employees now needing to work from home. It is, therefore, best to look to existing legislation and guidelines to determine any relief available.
Sole Proprietors and Independent Consultants
An individual who runs a business from home as a sole-proprietor or independent consultant is usually not restricted in claiming home office expenses proportionate to the area used for business.
According to The Income Tax Act No 58 of 1962, home office expenditure is described as follows:
What constitutes home office expenditure?
Typically, home office expenditure will be the type of expense referred to in section 23(b), namely –
- Rent of the premises.
- Interest on your bond.
- Cost of repairs to the premises.
- Other expenses in connection with the premises.
In addition to these expenses, other typical home office expenditure may include –
- Phones
- Stationery
- Rates and taxes
- Cleaning
- Office equipment
- Wear-and-tear.
Employees
There are limited circumstances when salaried employees can claim deductions for expenses incurred in providing services to an employer.
The rules for claiming home office expenses are extremely strict and not of general application. Specific requirements need to be met to enable an employee to claim such an expense as a tax deduction. One must always ask the question ‘are my expenses incurred directly related to my employment, or in the production of my income?’
Individuals earning remuneration from an employer can only claim these home office expenses (as described above in The Income Tax Act No 58 of 1962) if:
- Their home office is equipped for and regularly and exclusively used by the individual to work for the employer for which they earn remuneration.
- At least 50% of their remuneration is variable (such as commissions or bonuses) and at least 50% of working hours are spent away from the employer’s office. If the individual has less than 50% of remuneration as variable payments, they can still claim home office expenses if they spend more than 50% of working hours working from home.
Improvements to one’s home, such as building on an additional room to use as an office, will not be deductible, since that expense is typically capital in nature.
It is also important to note that any items that the employer provides to the employee, such as laptop computers, 3G card or office furniture, would in any event not be deductible in the employee’s hands since it is not an amount incurred by the employee.
If employees intend to claim home office expenses in their ITR12 tax, they should retain invoices and statements of these expenses, and prepare a running spreadsheet of the number of days worked at home for the tax year. These documents need to be retained for five years and submitted to SARS should the ITR12 return be selected for verification.
The calculation of square metre of home office area, relative to the total residence, with the same ratio applied to expenses such as rates and interest, also need to be submitted.
Arrangement Between Employer and Employee
The easiest way for employees who must work from home during the lockdown to claim home office expenses in the short term is to work on a reimbursed basis with the employer by providing supporting invoices for such expenses.
Expenses such as fibre connectivity, cell phone, computer equipment and phone costs can be claimed from the employer if it was incurred mainly in the employer’s business. It will be preferable for any invoices to be in the employer’s name to enable the employer to claim input VAT on these reimbursements.
These amounts would not be part of the remuneration and no PAYE would be withheld from the reimbursed payments. However, this method requires more involvement from the employer due to the need to check and approve the expenses.
We strongly advise employers to inform their employees of the requirements to qualify to claim home office expenses as a tax deduction in their tax returns and point out the potential implications for them if they do. They should also preferably advise employees to obtain tax advice from a reputable tax adviser before embarking on the process.
For any more information or further tax advice, you are welcome to contact Deon or Marcel on
012 347 0561 or email us at info@iqaccounting.co.za.