Deduction on Home Office Expenses - What You Need to Know

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Written by Juarita de Bryn

People have been asking us about the deduction of home office expenses for employed taxpayers and here is a great summary in preparation of the 2021 tax season.

We confirmed with SARS that full-time employees may claim home offices expenses during lockdown with some requirements:

  • That they worked from home for at least 6 months for the tax year (at least till end of September 2020 from start of national lockdown)

  • The employees/staff members main duties were performed at home i.e., more than half of the day worked from home and more than 50% of duties performed at home.

  • That the home office must be specifically equipped for work for regular and exclusive use. So detailed square meter office space. If the area or room is not specifically equipped and dedicated for the purpose of employment or is only used occasionally, the employee will not qualify for the deduction (for instance if you had to work from a dining room table you may not deduct your expenses).

  • The employee can only claim actual expenses and may need to provide proof of these expenses.

List of expenses you may claim as a deduction include:

  • Part of your interest on bond, 

  • Rental of home

  • Municipal rates and taxes

  • Water and electricity

  • Stationery 

  • Data cost and internet connection.

  • Wear and tear on office equipment. 

  • Repair on premises.

  • Cleaning

  • Computer repairs

  • Office’s furniture.

The reimbursement from the employer to the employee will not be part of the remuneration and no PAYE would have to 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.

Also please consider the following

1. The effects on the homeowner’s capital gain tax calculation on Selling his/her primary residence

Because part of your home is not only used as your residence, but as an income-generating (because you are being remunerated for the office), that part that was used as an office and was included as a tax deduction is excluded from the capital-gains tax break.

E.g., if you claim 5% of the floorspace of the home as an office, then 5% of the eventual selling price could be liable for CGT, at a rate of 40%.

However, the CGT calculation also takes into consideration the length of time over which you use your home office. But please remember about this for all sole traders or people claiming home office working expenses as a deduction.

2. Reimbursements on expenses 

“If an employer reimburses the expense incurred by an employee, the reimbursed amount is not taxable if the expense has been incurred at the employer’s instruction, for the employer’s trade, and the employee must account for it to the employer to prove that it has only been used for that purpose," the SARS spokesperson said.

Examples of reimbursed expenses that would not be subject to tax would be data bundles purchased to work from home and stationery used for work purposes. 

“The employer can also claim VAT on reimbursements if the employee acquires any asset on behalf of the employer for primary use in the employer’s business” – SARS added

3. Supporting documentation of most importance 

According to South African Institute for Tax Practitioners (SAIT), supporting documentation could include scanned copies of invoices and statements, as well as the relevant calculations for substantiating the percentage portion for home office expenses claimed.

“They must also ensure that the supporting documents can easily be reconciled with the home office claim on their ITR12,” SAIT stated.

If these documents are unclear or insufficient, the tax authority may reject them altogether, SAIT warned.

Webber Wentzel partner, Joon Chong, has also advised employees to keep a running spreadsheet of the number of days worked at home for the tax year.

“While the core work of the audit is backward-looking − requiring verification of past transactions for authenticity − much of it is not. Audit also requires an eye into the future to test the economic soundness of management’s assumptions” – SAICA Magazine

Have any questions about home office deductions and expenses? Get in touch