To claim or not to claim

While working from home has become the new normal, the possible tax implications are still an unknown aspect to many.

Since March 2020 the work environment has changed dramatically, with many more employees working from home than ever before. Working from home comes with certain expenses that is necessary to create a productive working environment.

Shortly after national lockdown was initially implemented, SARS published an update on its website to provide “additional clarity for individual taxpayers who may be considering submitting claims for home office expenses in their income tax returns”. The media release from SARS made it clear that there have been no changes to the legislation in relation to a ‘home office’. The legal requirements remain the same as before the Covid-19 pandemic.

In a subsequent draft Interpretation Note (IN28), SARS explained that taxpayers who are “in employment or holding an office” may not deduct office expenses in certain circumstances, these include working at a dining room table instead of in a dedicated room or also using the home office space for purposes other than working.

Many commentators have said that the draft interpretations are not consistent with National Treasury’s intention, expressed in the February Budget Review, to explore existing travel and home office allowances for “efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives”.

According to current legislation, home office expenses can be claimed if a taxpayer is able to answer in the affirmative to all the following questions:

Did you receive remuneration for duties performed mainly (more than 50%) in part of your private premises occupied for purposes of that remuneration?
Do you have a dedicated room in your premises?
Is this room specifically equipped for the purpose of that remuneration?
Is this room regularly used for purposes of performing the duties in relation to that remuneration?
Is this room exclusively used for purposes of performing the duties in relation to that remuneration?
Did you incur home office expenditure relating to your domestic premises?

What expenses can be claimed for taxation purposes?

Permissible home office expenditure includes rent paid or bond interest, cost of repairs to the premises, other expenses occurred in relation to the premises such as municipal rates, electricity and water, and depreciation of office equipment. With reference to rental payments, bond interest, municipal expenses, and electricity, the cost of the claim needs to be apportioned according to the floor space applicable, i.e., the total square metres of the dedicated office in relation to the total square meterage of the home. Other allowable home office expenses include telephone costs, costs of internet connectivity, repairs to office equipment, printing and stationery, and cleaning expenses.

The specific nature of the wording in the current legislation, as well as in the draft Interpretation Note (IN28), means that taxpayers who are looking to claim home office expenses are advised to consult their tax advisors to ensure that they comply with all the relevant stipulations. SARS has warned that taxpayers who claim home office expenses for the first time may be selected for an audit or verification of their tax returns.

Your tax advisor will be able to provide you with the necessary guidelines and practical advice to ensure that you are able to supply SARS with the necessary proof if requested. This includes written verification of the hours required by your employer that you need to spend working from home, keeping all applicable tax invoices, and keeping a complete timesheet of hours spent working in your dedicated home office.

SARS Commissioner, Edward Kieswetter, says that SARS asks taxpayers to carefully consider the longer-term implications of defining an area in their primary residence as a home office for tax purposes. This includes possible capital gains tax implications, as formally defining part of a primary residence as a home office means that the home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence.

For taxpayers who are averse to the possible negative tax implications, or the administration required in claiming for home office expenses, a possible solution would be a monthly home office expense allowance from their employers. This allowance would be taxable in the hands of the employee. In the instance that said expenses are reimbursed by the employer, it would not form part of the employees’ taxable income.

Employees are advised to discuss the possible implications of claiming for home office expenses with their tax advisors prior to making any decisions in this regard.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.