Your 2021 tax return – How to claim home office expenses
Prior to March 2020, it is arguable that the concept of working from home has been, for a small population of individuals, nothing out of the ordinary and part of their normal day-to-day business. However, the assurgency of the COVID19 pandemic and the lockdown restrictions that followed suite, has certainly resigned many employees to reconsider their day-to-day business operations and join the population of personnel working from home offices. With this revolution, comes the question of whether employees working from home, will be able to claim a tax deduction for home office expenses.
When can an employee claim home office expenses?
The Income Tax Act (ITA) allows a person who is carrying on a trade, to deduct expenses incurred in the production of income. In addition, where the person’s trade is employment, the ITA further lays out criteria that the employee must meet to deduct home office expenses. In short, for an employee to claim home office expenses, the space that is utilised for the home office and the employee need to meet certain criteria:
1. The home office must be occupied for trade purposes
It is not sufficient for a room to be designated as a home office, for it to be considered a home office. The home office must be occupied exclusively for trade purposes – i.e., occupied for the purpose of carrying out trade duties. SARS will thus not allow you to claim should your home office be the dining room table.
2. The home office needs to be specifically equipped
The area that is designated to be a home office needs to be specifically equipped for the purpose of conducting trade services. This simply means that for the home office to be considered as ‘specifically’ equipped, the home office space needs to be fitted with the instruments, tools and equipment required by a person to carry out his or her trade duties.
3. Regularly and exclusively used for employment duties
The home office space, in addition to being equipped, needs to be used regularly and exclusively to carry out trade duties. A home office space that is used occasionally, i.e., once, or twice a week, is not being used frequently enough to be considered as regularly used to conduct trade duties. In addition, the home office space will not be exclusively used if the home office is also used for a different purpose, such as a guest room. Also, should you and your partner both be working from home, and both use the same room for purposes of conducting your duties, SARS will not consider this as exclusive use for either of the two.
4. If the person’s trade is employment
As mentioned above, where the person is an employee, an additional criterion must be met for the employee to claim home office expenses. The criterion is related to the employee’s income, and more specifically, whether the employee’s income from employment is mainly commission based.
For income to be considered ‘mainly’ commission, the commission must constitute more than 50% of the employee’s total remuneration. An employee who earns mainly commission and works frequently and mainly from a home office, will be able to claim the expenses that are related to the home office.
Employees who are not commission earners or whose commission is not more than 50% of their total remuneration, may still qualify to claim home office expenses. These employees must perform their employment duties mainly from their home offices to claim home office expenses. Mainly, in this instance, means that more than 50% of their employment duties must be performed in home offices.
Most employees who have recently embraced the idea of working from home, due to COVID19 restrictions will most likely fall into the category of non-commission earning employees. Provided they also meet the above requirements, they would have been forced to work regularly from a home office and would be able to claim expenses related to their home office.
In general, expenses that are not of a capital nature and that have been incurred in connection to with the person’s home office, may be deducted as home office expenses. This does allow for various expenses, such as, rates and taxes, levies, electricity costs, some repair costs, interest on mortgage bond, and cleaning costs, to be claimed as home office expenses.
The expenses listed, however, cannot simply be deducted in full. The ITA only allows for expenses that have been incurred in the production of income to be deducted – consequently, only the expenses that are linked or proportioned to the home office, will be allowed to be deducted.
The expenses will, therefore, need to be apportioned to the home office, using the premises total floor area and the home office floor area, for the expenses to be claimed as home office expenses.
The COVID19 pandemic and its ensuing restrictions have, for some employees, been an unwelcome social and business barrier. But there is a silver lining. Employees who have been forced to use a home office during the 2021 tax year, may be able to realise a tax refund by claiming their home office expenses.
I am a Legal Consultant and Head of Tax Africa. I specialise in tax, and compliance and have qualifications as an Admitted Attorney (BA-Law, LLB(SA)) as well as Certified AML Fintech Compliance Associate (ACAMS) and Certified Bitcoin Professional (C4). If you have any questions or require assistance with your 2021 tax return, you are welcome to connect with me on email: [email protected] or cell no: 0728263988.