Taxpayers who are salaried employees have limited deductions available to them. However, home office expenditure can be claimed as an income tax deduction, but the onus is on the taxpayer to prove that the expenses are in fact deductible.
For employment to constitute a “trade” and to qualify to deduct home office expenditure, the taxpayer should prove that the home office:
- Is specifically equipped for this purpose: the home office must be equipped with the necessary tools and equipment required to render the trade (desks, chairs, computers, printers, trade-specific equipment, etc.). A lounge, living room, or empty, unoccupied room will not qualify as a home office for purposes of this deduction;
- Is used regularly and exclusively for this purpose: the home office space should not be used for any alternative purpose, such as a playroom for your children, as this would most likely disqualify the deduction. It should also be used regularly as opposed to occasionally; and
- Is where more than 50% of the taxpayer’s duties are performed: The Income Tax Act No 58 of 1962 does not prescribe whether this refers to time or volume of work, but it can generally be accepted as the total working time.
Expenditure that a taxpayer incurs in respect of their home offices will qualify for a deduction but is, however, limited to the following: rent of, cost of repairs of, or expenses in connection with, any premises occupied for purposes of trade. Any expenditure incurred regarding repairs to the property must have some relation to the home office to be permitted as a deduction.
Expenses in connection with a premises that would qualify for a deduction include items such as –
- Interest on the mortgage bond;
- Rates and taxes, and any other municipal service charges such as sewerage and refuse;
- Levies;
- Electricity; and
- Cleaning costs.
Expenditures such as phone costs (including the monthly charges), stationery, furniture, computer, and communication equipment are not expenditures incurred in connection with the premises and fall outside of the scope of what is permitted by this deduction. Equipment may, however, nonetheless qualify for a wear-and-tear allowance.
Regarding telecommunication expenses, costs such as monthly subscriptions, fibre installation, etc., are not permitted as expenditure incurred in connection with the premises and is prohibited from being deducted. Hopefully, this position will be remedied by SARS soon.
SARS may request information pertaining to the home office of a taxpayer and will in this regard, more likely than not, request the submission of photographs to confirm that that specific area of the home is mainly and exclusively used for purposes of trade.
A taxpayer should ensure that their home office is utilised exclusively by them and for purposes of their trade and that they and their spouses do not jointly use it for home office purposes. Despite this deduction’s administrative burden, it is still sensible for a taxpayer to claim the deduction where the majority of such taxpayer’s duties are performed in their home office.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).