Nowadays, work culture has evolved massively and “Flexible employment” has become the new buzzword. This is especially relevant at the moment, where many employees are still working from home due to the global Corona virus outbreak of 2020.
It is worth understanding the tax rules around home office expenses as SARS may allow these employees to deduct their home office costs within the “Other Deductions” section of the ITR12. It is important to realise though, that this deduction is only allowed under certain specific conditions.
With that said, it’s important to understand that this situation is different for sole proprietors or freelancers who work from home – these taxpayers can automatically deduct all their home office expenses. Luckily, for them, they needn’t work through the same stringent set of conditions, to see if they qualify for a deduction. They can just simply reflect the relevant portion of home office expenses within the "Local Business, Trade and Professional Income" section of their ITR12.
This is what’s required in order to deduct home office expenditure:
• The employer must allow the taxpayer to work from home. Please see letter from employer which is required.
• The taxpayer must spend more than half of their total working hours working from their home office.
• The taxpayer must have an area (entire room) in their home, which is used exclusively for this purpose. For example, taxpayers who meet clients at their home in their dining room would not qualify. Similarly, a room which is used as an office in the morning and doubles up as a child's playroom in the afternoon, also would NOT qualify. A separate space, which is used specifically for the taxpayer’s work, needs to be maintained in order to qualify for the deduction. SARS are very strict with this requirement and are asking for evidence in the form of photographs (some showing the work space and another showing the room is used for work exclusively) and floor plans.
• The office must be specifically equipped for the taxpayer’s trade i.e. it must be specially fitted with the relevant instruments, tools and equipment required for the taxpayer to perform their work.
NB: If you do not meet ALL of the the requirements above, do NOT claim a home office deduction. SARS is working hard to detect false home office claims and could even do a visit to your house to check out your home office,so be warned!
What expenses can be deducted?
Firstly, one needs to look at the taxpayer’s remuneration structure to see whether he/she:
• is a “commission earner” i.e. takes more than 50% of their total remuneration from commission or some other variable form which is based on their work performance or,
• is a normal salaried employee with variable payments/commission making up less than 50% of their total remuneration.
The first group (i.e. “commission earners”) can deduct rent, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house as well as other commission related business expenses (e.g. internet, telephone, stationery, repairs to printer etc.).
The second group (i.e. salaried employees with variable payments/commission making up less than 50% of their total remuneration) can deduct rent, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house only.
2022 update: SARS have stated in their latest Interpretation Note, that interest on bond expenses will no longer be allowed to be included as a home office cost for tax year 2023 onwards. Taxpayers can continue to claim their interest on bond expenses in 2022 and previous years.
How to calculate the home office deduction
One needs to work out the total square meterage of the home office in relation to the total square meterage of the property, and then convert this to a percentage. One then applies this percentage to the home office expenditure in order to calculate the portion, which is deductible.
Let’s look at an example:
Leigh-Ann is a graphic designer who works for Company A. Her remuneration consists of a salary only. Her Company promotes a flexible work culture and therefore allows Leigh-Ann to work from home three days per week. Leigh-Ann has a separate office at home, fitted out with a computer and printer, which she uses exclusively for her graphic design job. The computer and printer were purchased two years ago for R 12 000 and R 8 000 respectively. Her office is 20 square meters, and the floor space of her entire home (including the office) is 200 square meters.
Assume that SARS allows for a 3-year depreciation period for the computer and printer.
During the tax year she incurs the following expenditure:
- R 120 000 rent
- R 36 000 rates and electricity
- R 36 000 paid to cleaner
- R 5 000 roof repairs
- R 12 000 cell phone expenses
Based on the above, Leigh-Ann does qualify for a home office deduction. The square meterage of her home office (20m2) in relation to her house (200m2) is 20/200 which is 10%.
Therefore Leigh-Ann’s home office deduction for the tax year =
10% X (R 120 000 +R 36 000 + R 36 000 + R 5 000) + R 6 666 = R 26 366.
You can also use our handy Home Office Calculator to assist with your workings.
Since she is not a commission earner, her cell phone expenses are not deductible.
For the 2021 year of assessment:
Answer TaxTim’s simple questions to find out if you can deduct home office expenditure
Please also read TaxTim's FAQ on home office expenditure.