As more and more South Africans find themselves working from home due to COVID-19, we are increasingly asked if the costs that come with working from home can be deducted for tax purposes.
As with most things tax related, the answer is not a simple yes or no but rather, depend on the individual circumstances of the taxpayer trying to claim the tax deduction.
If you are able to answer yes to the questions below, then it is more than likely that you are allowed a deduction in your income tax return for your home office expenses:
- Is your home office specifically equipped for the employees’ trade?
Your home office should be fitted with a desk, a chair as well as other relevant equipment required to conduct your trade (or your duties as an employee). SARS Interpretation Note 28 highlights the importance of having a dedicated office area – taxpayers meeting clients in their lounge or dining room at home will not be allowed a deduction. Instead, a separate office for such purposes should be reserved and equipped.
- Is your home office used exclusively for purposes of trade?
It is crucial that the home office be used only for purposes of the trade of the employee and not for anything else. Where it is clear to SARS that such a home office is used for other purposes (for example, a kids playroom or a tv room) the deduction for home office expenses will be disallowed.
Unfortunately, if you live in a bachelor flat, and have reserved space or a certain area in the flat for work (rather than having a separate room), it is likely that a deduction claimed for home office expenses relating to this area will be disallowed on the basis of the exclusivity test.
- Do you mainly perform your duties in the home office?
The term mainly is not defined in the Income Tax Act. However, SARS Interpretation Note 28 states that the duties of the employees must be performed more than 50% of the time in the relevant tax year in such a home office. This would equate to working from home for at least six months to qualify for this deduction.
It should be noted that where the nature of a person’s job is such that they are required to work at the premises of their clients for most of the time, home office expenses cannot be claimed. This is because the home office will not be used by such a person regularly for trade purposes.
Determining how much you can deduct:
Assuming you are entitled to a deduction for home office expenses, the amount thereof will have to be apportioned according to the square meters covered by the home office expressed as a percentage of total square meters of the dwelling.
The home office expenses in connection with any dwelling include, rent, repairs, rates, interest on bond repayments, internet, telephone, and other cost such as stationery printing etc.
Impact of having a home office on the capital gains tax primary residence exclusion
Another factor to note is that for capital gains tax purposes the primary residence exclusion will not apply to the portion of the dwelling that was used as a home office. The portion of the dwelling occupied for purposes of trade in the form of a home office is considered to be tainted and as a result a capital gain or loss in relation to such tainted portion must be taken into account in calculating the tax liability when the property is sold.
If you require assistance or clarification re any of the above, please don’t hesitate to contact one of our PKF Octagon Partners.