DO YOU QUALIFY FOR INCOME TAX DEDUCTIONS IN RESPECT OF YOUR HOME OFFICE?
COVID Stay at Home Work & SARS
In terms of the Income Tax Act, generally, only independent contractors and commission-earners have a claim against SARS for expenses relating to, amongst other things, their home office. SARS has now confirmed that some relief is also available to full-time salaried employees working from home due to the lockdown and social distancing measures introduced after the COVID outbreak in respect of expenses related to their new interim home offices, subject to specific circumstances as set out in the Income Tax Act. These tax deductions effectively compensate the employee to some extent for costs of equipping a home office.
What are the prerequisites?
The Income Tax Act sets out basic requirements that must be met to qualify for deductions in respect of a home office incurred by a full-time employee. These requirements are that:
- You must practice a “trade”, which can be constituted by being employed.
- The home office must be specifically equipped for you to do your job. In many instances, this would mean that there is a computer, internet connection, printer, desk and chair, and so forth.
- You must regularly and exclusively use the home office to do your job.
- More than 50% of your work needs to be performed in the home office. In other words, more than 50% of aggregate working hours in the 2021 year of assessment (12 months ending 28 February 2021) must be performed from the home office.
Which deductions are allowed?
If the above requirements have been met, the employee may deduct, proportionate to the area of your home used as home office:
- Rental or bond interest on your home and home repairs;
- Municipal rates, electricity and water; and
- Wear and tear on office equipment, as allowed by SARS.
You are also likely to incur numerous costs in running your home office, such as cell phone expenses, internet connection costs, equipment repairs, stationery and cleaning. These are not specified in the Income Tax Act as allowable tax deductions and it may be advisable to rather negotiate with your employer for reimbursement than to assume that SARS will allow these as deductions against income earned.
What to expect from SARS
In order to claim such deductions, it is likely that SARS will ask the employee for the following when the ITR12 tax return for the year 2021 is filed:
- Confirmation from his or her employer to confirm that he or she is working from home;
- Proof of expenditure incurred (ie. invoices and statements of these expenses); and
- A spreadsheet of days worked at home for the tax year.
Do note that claiming for a home office may well have an adverse effect on the amount of Capital Gains Tax the employee may be liable for when he/she eventually sells the home. This is a complicated consideration and the employee should receive professional advice on this aspect.