Is there a tax benefit to working from home? - Forvis Mazars

Working from home has in some cases increased the productivity of employees, allowing people to have more flexibility and a better work/life balance. In many cases this has also reduced the employer’s overheads depending on their line of work.

Employees may wish to claim a tax deduction for certain expenses incurred in relation to a home office. Before claiming any tax deduction, employees must ensure that they meet the necessary requirements and that the amount they wish to deduct is determined correctly.

SARS has released an updated Interpretation Note No.28 as guidance on what SARS will accept as allowable expenditure and how the deduction must be determined. The Interpretation Note is still subject to public comment.

At the outset, a distinction needs to be made between someone earning commission and someone receiving a fixed salary as an employee or is the holder of an office. Where a taxpayer mainly earns commission, the expenditure that can be claimed by the taxpayer is much broader than if that taxpayer received a fixed salary

Generally, the deductibility of expenses relating to a home office must be determined with reference to section 11 of the Income Tax Act 58 of 1962 (ITA), read with sections 23(b) and 23(m).

Section 23(b) sets out the circumstances under which expenses related to a home office can be claimed. Section 23(m) limits the types of expenses that can be claimed where the taxpayer is in employment or the holder of an office and 50% or less of the taxpayer’s remuneration is in the form of commission.

When looking at home office expenditure in general (before the relevant restrictions contained in section 23(m) are considered):

Home office expenditure includes expenditure in relation to the rental of the premises or the interest paid on a mortgage bond (if the taxpayer owns the premises), the cost of repairs to the premises and the expenses in connection with the premises, typically being part of the overheads of the taxpayer.

Expenditure included in the maintenance of a home office would also include expenditure in respect of phones, internet, stationery, rates and taxes, cleaning, office equipment, furniture and fitting and repairs thereto as well as general wear and tear of the furniture and fittings in the home office.

Restrictions to home office expenditure:

Where a taxpayer is in receipt of remuneration from employment or the holder of an office and where more than 50 per cent of that income is not mainly due to sales-based commissions, the allowable expenditure is limited as follows:

The taxpayer will only be able to claim interest on a mortgage bond, rental, repairs and expenses incurred in relation to a dwelling, house or domestic premises where -

The expenditure is derived from carrying on that employment, including employment, that can be seen to have been incurred in the production of that income, that is not of a capital nature;
The actual expenditure relates to the repairs of that property used as a home office;
The expense would be regarded as wear and tear of any assets acquired as tools to assist you in carrying on employment, i.e. a desk, computer, printer etc.

Does your premises qualify as a home office (as approved by SARS)?

In order for an employee to be allowed to claim domestic or private expenses relating to their home office, the requirements of section 23(b) must be met:

In order for a part of your dwelling, to be regarded as a “home office”, the space used must be specifically equipped to allow you to carry out your employment. In addition the space must have the right tools and instruments allowing you to perform your duties and the area must be regularly and exclusively used to carry out your employment.

If you only use your “home office” occasionally, i.e. once a week, this would not be regarded as regular use of that premises and would therefore not be regarded as a home office.

You should be able to support your claim that you mainly working from home. This could be done by way of a copy of your company’s policy document or confirmation from your employer that you are required to work from home more than 50% of the time.

If you work from your dining room table, or allow your family to use the same area on weekends or in the afternoon, this will also not be regarded as a home office as it is not exclusively used to carry out your employment. Sharing the space with a spouse who carries out their own employment, will also disqualify you from being able to claim any home office expenditure, as the space would not be used exclusively by one particular taxpayer.

Should your work space qualify as a home office, when completing your income tax return, you would be able to claim expenditure to reduce your taxable income in relation to the home office. Any expense relating to your property as a whole will have to be apportioned to the extent that it applies to your “home office”. I.e. if your study is 10m² and your house 150m², the portion of the rates and taxes you can claim as part of your home office expenses will be calculated in accordance with the ratio 10/150.

The burden of proof that an amount is deductible rests with the taxpayer. Evidence of the expense should therefore be retained by the taxpayer in case it is called upon.

Repairs can only be claimed if they are directly related to the home office area, i.e. if the garage or bathroom is repainted, this will not qualify. If, however, the roof of your house is blown away in a storm, you would claim a portion of the repair as part of your home office.

Example of expenditure that will qualify:

Interest paid on a mortgage bond;
Rental expenditure;
Rates and taxes including other municipal charges;
Levies;
Electricity; and
Cleaning costs.

Expenditure that will not be allowed (SARS is of the view that such expenditure in not incurred in the connection of the premises, therefore falling outside the scope of qualifying expenses):

Bond and household insurance costs;
Phone and data costs;
Furniture;
Stationery;
Computer and communication equipment; and
Fibre installation.

Where a modem/ phone or furniture is purchased, the cost incurred should be deductible as a wear and tear allowance, which is deductible.

Capital Gains tax adjustment:

Should you be eligible to claim home office expenditure in relation to your primary residence, you should be mindful that this will have an effect on your capital gains tax calculation at the time of the disposal of your property. Where you dispose of your primary residence, there is an annual exclusion of R2 million that will reduce any capital gain, at the time of disposal. Should you have used a portion of your property as a home office, you will need to apportion the gain, based on the time that the property was used as a home office and the area of the property. This portion of a gain applicable to your home office will not qualify for the primary residence deduction.

Although the Interpretation Note has clarified the expenditure that can be claimed as part of home office expenditure, it is still quite restrictive in relation to taxpayers who are in employment. Should you however qualify for a deduction you would have the benefit of reducing your taxable income.

Find a copy of Draft Interpretation Note 28 (Issue 3) here.

12/06/2021