Home office: The tax implications

The world is changing and so is the way people work and interact. Many people, like myself, prefer working from home. The office can be viewed as less productive for the following reasons:

  • Flexible hours mean that some team members may arrive an hour or so after the first person that arrives at work. When they arrive, they may want to chat about the previous day or night. This may throw off the early birds off balance/rhythm that they have already established since arriving at work early that morning.
  • The phone at your desk rings, and boom the call had nothing to do with you. But, that also breaks your chain or thought or rhythm that you already were in before the call rang. And now you also have to run around office looking for the person the call was actually meant for.
  • Meetings! Some say, ‘management are the reason why work never gets done.’ They call for a 5 mins stand up meeting that always end up taking an hour or more. That meeting time is just so that they can get an update about something. A waste of time! They could have received an update via a chat platform or over email or a live dashboard.

The list could be endless and some may argue that employees working from home end up feeling lonely. Reality is that many people prefer working away from the office these days. Many more are self-employed, so working from home is not an option.

Luckily, SARS allows home office deductions if certain conditions are met. However, it is important to note that SARS often than not flag return with home office expenses for audit. So it is important that one correctly and accurately claim these deductions.

General rule:

The deductibility of home office expenses is determined in reference to Section 11 of the Income Tax Act. It would not be difficult to show that home office expenses fall into the requirements of section 11, provided the expense is not capital in nature. Some examples of these expenses include:

  • Rent of the premises
  • Interest on the bond
  • Cost of repairs to the premises and other expenses in connection with the premises
  • Phones
  • Stationery
  • Internet
  • Rates and taxes
  • Cleaning
  • Office equipment
  • Electricity

What are the specific conditions?

  • The employer must allow the taxpayer to work from home.
  • The taxpayer must spend more than half of their total working hours working from their home office.
  • The part of the home in respect of which a claim is submitted must be occupied for purposes of a “trade”, as defined in section 1. So, in essence, there should be a specific part of the home that is used exclusively for this purpose. As an example, a specifically set aside office must be kept aside for the trade. A taxpayer meeting with a client in the bar area of their home may not qualify for these deductions.
  • Building from the point above, the part that is so occupied must be specifically equipped for purposes of the trade. So it is important that the space/office must be specially fitted with the relevant instruments, tools and equipment required for the taxpayer to perform their work.
  • The part must be regularly and exclusively used for purposes of the trade. As an example, taxpayers who earn commission but who spend the majority of their time on the road visiting clients and performing their work at the client’s premises do not qualify for home office expense deduction.

How to calculate the home office deduction:

One would need to workout/measure the total square meterage of the office in relation to the total square meterage of the house. This is then converted into a percentage. The percentage is then used to apportion the expenses that can be used for home office deductions.

A few scenarios:

  1. A taxpayer earns rental income. They want to know if they can deduct home office expenses. Yes, they can. They must include the expenses under the rental income sections on their tax returns.
  2. A consultant works from home. They conduct their work from a study in the house. They are also employed full time. The consultant can claim if the study is specifically designated for the work they do. Because they are still employed full time, they must give SARS a letter from their employer that states that they are allowed to work from home for more than 50% of the time.

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