For most of us, the financial year that ended 28 February 2021 involved considerable time working from home. Unless we were essential services workers, we were cloistered behind closed doors trying to stay productive. As the filing season for personal income tax returns looms, it’s worth considering what can (and cannot) be claimed for as a legitimate tax deduction, writes Nicoline Benzien, Associate Director at BDO Tax Services.
Ordinarily, conversations about home office deductions apply to entrepreneurs and commission earners and not full-time salaried employees who typically claim expenses like their retirement annuities and medical aid contributions. The national lockdown has changed that. And while it’s tempting to claim for everything you think of as a business expense, the advice here is to be cautious. SARS will likely monitor personal income tax returns very closely this year for exactly this reason. It’s imperative that you can justify your deductions when submitting your return.
WHAT COUNTS AS A HOME OFFICE EXPENSE?
According to the Income Tax Act 58 of 1962, taxpayers can deduct certain expenditure when working from home, to the extent that the expenses are not for private or domestic use. The expense claims must be incurred within the correct tax year and in the carrying on of any trade, including employment income, the expense should also not be of a capital nature. The Act contemplates this in terms of negative legislation (what you are not allowed to deduct) and positive legislation (what you can deduct).
If you worked from home between 01 March 2020 and 28 February 2021 for at least 180 days of the year, you can claim for business costs incurred, but only as a percentage of total expenditure. For example, you cannot claim a deduction on the total rental (or total bond interest) of your house when you only use one room for work purposes. And even then, you must be able to show that you used that room “mainly” (more than 50% of the time) and exclusively for work purposes. In practice this is difficult to test, and it’s unlikely that SARS will conduct field audits to confirm usage, but they may ask you for a photograph of your home office set-up. It’s also important to prove that your employer instructed you to work from home through, for example, a companywide email. The point is to be ready to provide substantiating evidence if you’re asked for it.
Other expenses that might be included as part of your home office deduction are:
- rates and taxes
- the cost of repairs, including wear and tear for furniture used for business
- home and household content insurance
Just bear in mind that most expenses must be calculated on a pro rata basis.
WHAT YOU CANNOT CLAIM FOR
You cannot claim a tax deduction for anything that your employer provides to you free of charge, like a work laptop or mobile data dongle. You also cannot claim for anything that your employer reimburses you for.
A REMINDER FOR HOMEOWNERS
It’s important to note that when you claim a tax deduction for home office use this has an impact on capital gains tax when you sell your home. Whatever portion of the house you’ve claimed for as a business deduction will be excluded from your R2 million capital gains tax exemption. For instance, if you claim that 20% of your home is used for business purposes, then only 80% will qualify under the capital gains exemption amount.
Even as many of us return to the office, we are likely to embrace a hybrid model where the workplace will be both office and home based. Knowing what to claim and how to justify it are essential tools for the future of work.