The South African Revenue Services has previously allowed the deduction of home office expenses in the determination of taxable income where taxpayers earn mainly commission or are independent contractors and freelancers.
However due to Covid-19, the work environment was forced to make certain changes more rapidly.
Many employees were forced to work from home, either on a full time or part time basis.
With the change in work culture and remote working, the question was raised by South African taxpayers whether they would be permitted to claim a deduction relating to expenditure incurred in respect of their home office, if they were salary workers.
In normal working conditions
The situation is different for salary workers, whom in order to claim any home office expenses, the below stringent requirements must be met –
It is not difficult to show that a home office expense meets the requirements of the Income Tax Act (ITA), to the extent that the expense is not of a capital nature. This is applicable regardless of whether the taxpayer is in employment, or holding an office or other taxpayers.
Qualifying expenditure under Covid work from home
Normal salary employees are allowed to claim for working at home but will be limited the following pro-rated expenses:
How to calculate your deduction
Capital gains tax (CGT) impact
When selling your home/primary residence, an individual is entitled to what is known as the primary residence exclusion. This exclusion can be used to set-off the capital gain/loss arising on sale, up to the value of R2 million.
It is important to note that when a part of your home is used for trade purposes (ie a home office) and a deduction is claimed for trade expenditure, this part of your home is considered tainted for capital gains tax purposes.
Upon the sale of your home the overall capital gain/loss will need to be apportioned between its tainted and untainted elements. This apportionment is done by taking into consideration the portion of the home being used for business/trade purposes and the applicable period claimed.
The primary residence exclusion can only be set-off against the untainted portion of the capital gain/loss and the tainted portion of the capital gain must be fully brought to account.
In the recent budget address, National Treasury have commented that in light of the significant migration to working from home over the past year, they will be reviewing current travel and home office allowances to investigate their efficiency and equity in application.