CLAIMING FOR YOUR HOME OFFICE EXPENSES

Remote working and flexible employment options have become a norm and will likely continue in the future as the world moves into the post-pandemic future. Naturally, many employers are curious about what that means now that it’s tax season. A number of our clients have been asking about how they can advise their employees who are working from home on how they can claim for home office expenses. First three important things to note here:

• SARS has not changed any rules, the guidance on home office expenses is legislation that has always been in place, however, they recently issued Interpretation Note 28. This places tougher restrictions on the home office claims.
• In anticipation of the influx of home office deductions, SARS is on high alert. It is almost a given that if you claim for this deduction, it will trigger an audit and they will request additional supporting documents, especially if you are claiming for the first time.
• If the employee owns their property and they claim home office expenses, this will increase the future tax payable (capital gains tax) when you decide to sell your home. Why? Because when you claim home office expenses you are telling the taxman that you use a portion of your home as a business, therefore, that portion classified for business use will not qualify for primary residence exclusion. So consider carefully the long-term implications.

Employees that have been “locked down” working from home due to COVID-19 will be able to claim a home office deduction if they end up working from home for more than six months of the tax year, provided they have an area of their home exclusively used and set up for this purpose. This means that employees who’ve been working at home since our lockdown started on 27 March 2020, would need to have remained at home until at least September 2020 in order to benefit from this tax deduction in the 2021 year of assessment

What are the requirements that need to be met?

To qualify to claim home office expenses, SARS has set out four requirements that need to be met:

• The employer must allow the employee to work from home i.e employee must have a letter from the employer stating such.
• You must ensure your company details are up to date.
• 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 you need further guidance on the requirements, SARS has designed a useful home office expenses questionnaire that can be accessed here

What expenses can be claimed exactly?

It depends on whether you are a commission earner or a normal salaried employee

Commission earners

This is when an employee takes more than 50% of their total remuneration from commission or some other variable form thatis based on their work performance Commission earners can deduct

• rent
• interest on bond
• repairs to the premises
• rates and taxes
• cleaning
• wear and tear
• all other expenses relating to the house
• other commission-related business expenses (e.g. internet, telephone, stationery, repairs to printer etc.)

Normal salaried employees

This is when an employee is a normal salaried employee with variable payments/commission making up less than 50% of their total remuneration.Normal salaried employees can deduct

• Rent
• interest on bond
• repairs to the premises
• rates and taxes
• cleaning
• wear and tear and
• all other expenses relating to their house only

Expenditure such as phone costs (including the monthly charges), internet, stationery, furniture, and computer and communication equipment are not incurred in connection with the premises and fall outside of the scope of what is permitted. Equipment may, however, qualify for a wear-and-tear allowance.
SARS has issued further guidance on claimable home office expenses here

Calculating your home office deduction

This is where it gets a bit tricky and employees will need to take extra care. The tax deduction is calculated for the area of the home utilised for trade e.g. employment purposes. Home office expenses relating to the premises are calculated on a pro-rated basis (square meters of the area of the home office versus total square meters of your home). So you will need to calculate the total square meterage of the home office in relation to the total square meterage of the house and then convert this to a percentage. Then, apply this percentage to the home office expenditure to calculate the portion that is deductible.

Supporting documents to keep

As mentioned already above, a claim for home office expenses on a tax return is almost guaranteed to be audited. Employees will, therefore, need to submit the supporting documents below to SARS:

• Letter from employer stating that taxpayer can work from home, the reason for doing so, and whether or not an office is provided at employer’s premises.
• Schedule of home office expenses
• Calculation showing how this amount was arrived at and the apportionment.
• Supporting invoices/ proof of payment for all expenses. These must include at least one utility bill with a physical address (affidavit if the property is not owned by the taxpayer).
• For wear and tear on office equipment, employment contract or letter from employer, purchase invoice and calculation of claim

The onus of proof will be on the employee. SARS will want proof that the claim is valid and true so it’s important that all relevant supporting documents are kept as well as the calculations that were used for the claim. Ultimately it is up to employees to decide whether the tax benefits outweigh the admin that comes with this claim and if they do, they will need to proceed with caution. It is also advisable that they seek guidance from a registered tax practitioner prior to submitting their tax returns.

The Accounting Village has a team of professionals that are always ready to assist on such matters. Please give us a shout here