Your 2021 Tax Return and Home Office Expenses – The Do’s and Don’ts

In just over two month’s time, tax filing season for individuals will be closing. This year’s tax return is an interesting and hopeful one for those individuals who will be submitting a claim for certain expenses incurred whilst working from home.

While SARS does permit the claiming of these expenses, there are very strict rules to consider before submitting a claim. Here’s a complete rundown of the do’s and don’ts.

Home Office Expenses – General principles

SARS does allow for taxpayers (i.e. those in formal employment) to claim home office expenses under certain circumstances, for example:

• The Employer must specifically request the employee to work from home – i.e. letter of instruction, letter of appointment, etc.

• The period of working from home must constitute at least 50% of the tax year.

• The employee must have a suitable work area to perform employment duties from.

• The work area must be equipped appropriately – i.e. in accordance with the work that the person is expected to do from home.

• The amount that can be claimed is in accordance with the size of the work area in relation to the entire house (including garages and domestic quarters) – i.e. if this amounts to 10% then 10% of the allowable costs can be claimed.      

Claiming:

• The section on the ITR12 where this is entered is under “Other Deductions”.

What can be claimed:

• a portion of the rental costs – i.e. where the property is rented;

• a portion of the interest paid on the bond – i.e. where the property is bonded;

• a portion of home repair costs – only those related to the home office;

• a portion of municipal costs such as water, sewerage, electricity, etc.;

wear and tear on the office furniture and computer equipment.

What can’t be claimed:

• Home phone, cell phone, connectivity (bandwidth, data), WIFI;   

• Stationery, cleaning, repairs/maintenance on equipment;

• These should be claimed from the Employer under normal claim policies.

ALL supporting information/justification must be attached – i.e. invoices, statements, a spreadsheet highlighting the expenses incurred (i.e. on a monthly basis). On the spreadsheet – separate capital expenses VS normal expenses, as they are treated differently.    

Note: The 2020 year saw a vast number of taxpayers having to work from home so SARS is expecting a large number of claims – they can and probably will conduct random audits.

Claiming Costs – an example:

Some points to consider:

SARS issued an Interpretation Notice (IN 28 – issue 3) regarding the claiming of Home Office expenses recently with some interesting comments/reminders:

• The work area must have actually been used – i.e. one may need to prove that the work was carried out in the designated area and not at a local internet café / a friends’ home where there is better connectivity!!

• The area must be exclusive to the person claiming – i.e. if the area was shared with a spouse who was also forced to work from home, then the claim will be rejected. Similarly, if the kids used the area to watch TV over the weekend then again, this claim will be rejected. 

• The area must be “mainly” used for work purposes. This poses a dilemma for those who are primarily out on the road visiting clients, etc. – they will find it hard to prove that they “mainly” worked from home.   

Important Note: There will be a capital gains tax implication, as the amount/space claimed as an office and the period of the claim for office usage will be taken into account if / when the property is ever sold – i.e. the R 2 000 000 exempt portion will be reduced in relation to the amount claimed. It’s important to do the calculation to see how the potential CGT liability stacks up against the tax saving for the year – as it may not be worth the effort/risk!!     

Other Considerations:

• For Commission only earners nothing has changed. Previous process and allowable deductions / permissible expenses remain as is.

• For sole proprietors or freelancers who also work mainly from home:

– they can automatically deduct all their home office expenses;

– there’s a less stringent set of conditions than salaried employees;

– they enter all their expenses under the “Local Business Trade and Professional Income” section on the ITR12.