Personal Income Tax Explained - Home Office Expense Claims

The Covid-19 pandemic forced many companies to reevaluate the way that they do business, especially with regard to office space. Many employees have been encouraged to work from home in order to reduce the number of employees in a workspace at any given time. This has led to a sharp increase in people who work from their homes full time. The Income Tax Act contains provisions that would allow individuals to deduct certain home office expenses for tax purposes if they are working from their homes. These provisions are not new and have formed a part of the act for quite some time, but naturally more South Africans have become aware of them as more start to work from home. 


Who can claim home office expenses? 


In order to be eligible for a tax deduction for home office expenses, an individual will have to meet the rigid requirements set out in the Income Tax Act. If your only income is generated from a salary and you have a separate room in your house that has been designated as your workspace, you may be eligible for certain deductions on your home office expenses for tax purposes. A room in your house will only be eligible for deductions if the room is specifically equipped to conduct your work in and is regularly and exclusively used for this purpose. This means that the room you have identified as your workspace may not be used for anything other than matters related to your job. If you are a salaried employee, more than 50% of your work must take place in this space in order to qualify for these deductions. If more than 50% of your earnings is made on commissions, another requirement is that 50% of your job has to be performed away from your employer's office space.   


What are home office expenses? 


If your home office has met the criteria set out above you will be able to claim a portion of your rent, as well as a portion of the cost of repairs to the premises. You will only be able to claim deductions on the portion of the property that has been designated as your office, and not on the entire house. Other expenses that can be claimed will be connected to the office space itself, meaning they were incurred because of this space being located at your home. This could include your internet, rates and taxes, stationery, cleaning and even wear and tear on office equipment.  


Capital gains tax implications 


One important thing to consider when applying for these tax deductions is the impact that they will have on your capital gains allowances once you sell your property. The portion of your property that has been designated as office space will not be eligible for the R2 million tax exclusion that someone is entitled to when selling their primary residence. This could end up costing a homeowner a significant amount of money and should definitely be considered beforehand.  


The South African Revenue Service (SARS) has reported that 1300 out of the 1500 tax returns that were submitted with home office expenses being claimed have been stopped for verification by the entity. SARS is conducting numerous audits on individuals that have put forward these claims and intend to maintain this stringent approach for the foreseeable future. Ensure that you remain in good standing with SARS while taking advantage of any deductions you qualify for by entrusting your financial affairs to professional accountants. Booysen Accountants have a wealth of experience in the financial industry and offer a variety of services to simplify your life. Contact us today to start your journey towards financial freedom.