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The Deduction of Home Office Expenditure
Posted 18 March 2020 under
Nowadays, work culture has evolved massively. “Flexible employment” has become the new buzzword. This is especially relevant at the moment, where many employees are working from home due to the global Corona virus outbreak.
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.
• The taxpayer must spend more than half of their total working hours working from their home office.
• The taxpayer must have an area of 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. A separate office, which is used specifically for the taxpayer’s work, needs to be maintained in order to qualify for the deduction.
• 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.
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, interest on bond, 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. 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, interest on bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house only.
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 house, 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 R12, 000 and R8, 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.