The number of South Africans who earn a salary from an employer while working from home is likely to have risen during the COVID-19 pandemic and national lockdown.
While sole proprietors and freelancers working from home can automatically deduct all their home expenses, those who are in the employment of a company can only do so under certain specific conditions.
In the event that a salaried employee spent more than 50% of aggregate working hours in the 2021 year of assessment (12 months ending 28 February 2021) working in their home office, he or she qualifies for a tax deduction for expenses on maintaining their home offices and equipment.
However, the South African Institute of Tax Professionals has explained that this is subject to the following requirements:
- The employer must allow the employee to work from home.
- The employee must spend more than half of their total working hours working from their home office.
- The employee must have an area of their home which is used exclusively for this purpose. For example, employees who meet clients in their dining room at home would not qualify. A separate office, which is used specifically for the employee’s work, must be maintained to qualify for the deduction.
- The office must be specifically equipped for the employee’s trade, i.e., it must be specially fitted with the relevant instruments, tools and equipment required for the employee to perform his or her work.
If the employee meets all of the above-mentioned requirements, they are eligible for this tax deduction.
Two types of workers
SAIT said to determine the exact expenses which may be deducted, one must first take a look at the particular employee’s remuneration structure.
Employees who earn more than 50% of total remuneration either from commission or some other variable form of compensation based on work performance can claim the following:
- Interest on a mortgage bond
- Repairs to the premises
- Rates and taxes
- Wear and tear
- All other expenses relating to their house
- Commission-related business expenses, including telephone, stationery, and printer repairs
Normal salaried employees with variable payments or commission making up less than 50% of their total remuneration, meanwhile, can claim for all of the above, with the exception of commission-related business expenses.
Calculating the tax deduction
In order to calculate what tax deduction you may be entitled to, you must first determine the total square meterage of your home office.
This figure must then be calculated as a percentage of the total area of the house, and applied to home office expenditure to work out the deductible portion.
Let’s use a full-time video editor at a television production company as an example.
Suppose the only form of numeration this editor receives is a salary, which means he falls into the second “normal salaried employees” category.
With his employer’s permission, he only has to come into office for one day in the week and can work from home for the remaining four days.
At home, he has an office equipped with a PC and recording equipment, all of which are dedicated to his video editing work for the company.
The PC and recording equipment was purchased a year ago for R24,000 and R30,000, respectively.
Assuming SARS allows for a three-year depreciation period for the computer and recording equipment, wear and tear will not be applicable here.
His office occupies 25m2 of the total 200m2 area of his home, which accounts for 12.5% of the square meterage.
During the 2020 tax year, the editor incurred the following expenditure:
- R140,000 interest on mortgage bond
- R42,000 rates and electricity
- R30,000 cleaning costs
- R10,000 roof and wall repairs
- R15,000 cellphone spend
The editor’s home office deduction can be calculated as follows:
(Percentage of office space / 100) x (Total expenditure) = 0.125 x (R140,000 + R42,000 + R30,000 + R10,000) = R27,750.
Commission-related expenses such as cellphone spend are not included, as the majority of the editor’s remuneration comes from a salary.
He will fill out these expenses within the “Other Deductions” section of the ITR12 Income Tax form.
Keep track of your expenses and workdays
It is important to keep supporting documents to back up expenses like those mentioned above, as SARS often requests them as proof.
According to SAIT, these 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.
Consider claiming from your employer
It should also be noted that claiming a tax deduction for a home office will have a negative impact on the capital gains tax calculation if you plan to sell your property in the future.
Employees who claim home office deductions will have to exclude any capital gains from the home office portion of the house from the primary residence capital gains exclusion, Chong explained.
“This exclusion provides for capital gains of up to R2 million on the disposal of a taxpayer’s primary residence or all capital gains if the selling price is less than R2 million, to be disregarded,” she said.
She said it may, therefore, be easier for employees who have to work from home during the lockdown to claim home office expenses from their employer on a reimbursable basis with supporting invoices.
“Costs which can be claimed include fibre connectivity, cell phone, stationery, and computer equipment if these have been incurred mainly in the employer’s business,” Chong noted.
“These amounts would not be part of the remuneration and no PAYE would 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.”
The employer can also claim VAT on reimbursements in the event that the employee acquires any asset on behalf of the employer for primary use in the employer’s business, Chong added.