What you need to know regarding home office expenses

The way we work on a day-to-day basis changed significantly since the Covid-19 pandemic with many employers adopting a more hybrid working model. This new economic environment and new ways of working created an environment where SARS and taxpayers had to adapt accordingly with new focus on salaried employees working from home to claim certain expenditure from their respective income taxes. With time passing by after the worldwide pandemic SARS again adapted to circumstances and changed legislation that includes changes to home office expenses and the deductibility thereof in future.

So what now? Are home office expenses still deductible for certain salaried employees working from home after the Covid-19 pandemic? In short, yes. However, SARS sets out rigid requirements that must be met before employees can claim a tax deduction for home office expenses. In this article, we provide a brief overview of the topic. Remember, the onus of proving that the expenses you have incurred qualify for a tax deduction rests with you as the taxpayer, and not with SARS.

What requirements must salaried employees satisfy to qualify for a tax deduction?

If you are a salaried employee and your employer has permitted you to work from home and you have set aside a room or part of your home to be occupied for purposes of carrying out your employment (i.e. for purposes of carrying out your “trade”), you may be allowed to deduct certain home office expenses for tax purposes. It is important to note that the room or part of your home should be specifically equipped for purposes of your employment and such room or part thereof should be used regularly and exclusively for your employment.

What expenses can you claim as a tax deduction?

Importantly, not all the home office expenses that you have incurred can be claimed as a tax deduction. With the new Interpretation note 28 from SARS, the taxpayer that qualifies for home office expenditure will only be allowed to claim rental, repairs and expenses in connection with the part of the premises qualifying for a deduction under section 11(a) and (d) and not prohibited by section 23(b) of the Income Tax Act, 58 of 1962. Expenditure such as phone costs (including the monthly charges); stationery; furniture; tea, coffee and other refreshments; computer and communication equipment; and monthly subscription fees for fibre, are not incurred in connection with premises and therefore not deductible. Also of importance to note is that interest on bond will not be deductible anymore as SARS now prohibits the deduction as home office expenses for salaried employees working from home.

What happens when you sell your home in future where home office expense was claimed?

If a primary residence or part of the primary residence has been used by a taxpayer or the taxpayers spouse for purposes of carrying on a trade, such as in the case of a taxpayer that makes use of a home office, then the R2 million or less-proceeds rule for disregarding any capital gain does not apply and It is of importance to note that the capital gain or loss on the disposal of the primary residence must be apportioned between its tainted (part of the primary residence used for purposes of trade) and untainted elements.

Examples of supporting documents which SARS may request from you

• a letter from your employer stating that you were permitted to work from home;
• Proof that more than 50% of your duties/work was performed in your home office. In this regard, you will need to provide records of the datesyou worked from home and from your employer’s office during the tax year;
• a copy of your home’s floor plan showing that the space is a dedicated home office;
• photographs showing the space that is specifically equipped for work;
• the underlying apportionment calculation showing how you calculated the amount reflected on the tax return; and
• documentation to prove the actual expenses incurred

The above-mentioned list is by no means exhaustive and SARS could request further information. SARS may also conduct a home visit should further proof be required that your home office meets the above requirements.

It remains therefore important for taxpayers to consult with their relevant Tax Practitioners to assist in tax calculations and tax submissions to ultimately ensure tax compliance in all areas.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)