It has become common for employers to require or permit employees to work from home.
The reasons for this include supporting flexibility, increasing productivity, health reasons, or as a cost-saving measure for employers to minimize working space and related costs.
Taxpayers who work from home can qualify to claim home office expenses if they meet the following requirements:
Section 11 (a)
The home office expense must be actually incurred in the production of income and must not be of capital nature
Section 23(b)
- The home office must be used for work purposes
- The home office must be specifically equipped for the taxpayer to do their job (computer, broadband, printer, desk, and chair)
- The home office must be regularly and exclusively used by the taxpayer to do their job
- Need to have mainly (more than 50%) performed duties in the home office (must have worked from the home office for at least six months in the tax year)
If the above criteria have been met, the following expenses may be claimed.
Home office expenses allowed
- Rent of the premises
- Cost of repairs to the premises
- Interest on Mortgage
- Rates and taxes, and any other municipal service charges such as sewerage and refuse.
- Electricity
- Levies
- Cleaning
- Wear and tear on office equipment (Computer, desk, chair, printer, telephone)
- Stationery
- Internet
- Phones
Calculation of the Home Office Deduction
- In determining the deduction that may be claimed for expenditure incurred in respect of a home office, both the apportionment ratio and the expenditure that is subject to apportionment must be determined.
- You need to calculate the area of your home office as a percentage of the total area of your house and apply this percentage to the total expenditure incurred
- Only the expenditure relating to rent, cost of repairs and expenses in connection with the premises is required to be apportioned based on floor area. Other expenses may be claimed in full provided such expenses are for purposes of trade and meet the other requirements for deductibility
- You need to ensure that supporting documents (e.g. invoices, bond statement, municipal bill, rental agreement) are available for SARS inspection
Home office and Capital Gains Tax (CGT)
- The first R2 million of a capital gain or capital loss on the disposal of a primary residence is exempt from CGT and if the proceeds in respect of the disposal of the primary residence are R2 million or less the capital gain thereon is also exempt from CGT.
- However, if the if a primary residence has been used partially for work purposes, the primary residence exclusion of R2 million must be apportioned for the non-residential use and the R2 million-proceeds rule for disregarding any capital gain, does not apply to the part of the house used for work purposes.
- The apportionment will be based on the proportion of the floor area used for work purposes and private use and must be applied to the total capital gain to arrive at a private portion of the capital gain and a business portion of the capital gain.
- The private portion of the capital gain will be reduced by the primary residence exclusion of R2 million, and the business portion of the capital gain will be fully subject to CGT.
- If more than 50% of the property is used for business purposes, the property will not be a “primary residence” as defined and the total gain, including any gain on the private portion of the residence will be subject to CGT
Supporting documents are essential to enable you to claim home office expenses incurred.
All documents must be kept for a period of 5 years.