Can I Claim The Home Office SARS Deduction?
At the start of the Covid-19 pandemic most industries across South Africa were made to work from home to stop the spread the virus. While this has come with many challenges, many businesses rose to the challenge and have adopted a remote working model that are still currently operating. While we may get used to greeting our colleagues via Zoom everyday, there are some hidden costs that we couldn’t avoid.
Recently, SARS announced that they will provide more clarity for those people intending on submitting claims for their home office expenses in their 2021 income tax returns. With electricity and data prices perpetually rising, this could be a real blessing for some households.
The commissioner of SARS recently heeded a warning to those intending to submit a claim, in that when you define an area in your primary residence as a home office, there could be long term tax implications. The commissioner advised that a home office claim should be approached with caution.
So, what should a tax payer consider before submitting a claim?
- A home office is still strictly defined as “an office, appropriately equipped, and must have been set up at the place of primary residence;
- The office must have been used regularly and exclusively for work purposes;
- The office must have been used for more than 50% of the employee’s duties or, if the employee earns more than 50% of their remuneration from commission or other variable payments based on work performance, more than 50% of the employee’s duties must have been performed away from the employer’s office;
- Any home office expenses must be linked to employment use and must be verifiable; and
- Home office expenses must be claimed against source code 4028 in the income tax return.
In circumstances where the home office is in taxpayer-owned property, taxpayers should note that formally defining part of a primary residence as a home office will most likely hurt a future capital gains determination. This means that the home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence. So if you have any intentions of selling in the near future, you should give it a lot of though before a claim for home office expenses is made.
It is important to note that the current definition of a home office is somewhat limiting. A desk space set up in a living room will not suite the “exclusive use” element and therefore rules out the eligibility of most employees living in smaller spaces. The money saved in the last year while working from home like that of transport, food or parking could in some scenarios outweigh the overall tax benefit. If you are planning on submitting the home office claim, it is important to be aware that first time claimants of this benefit have a high likelihood of being audited by SARS.
The opportunity to relieve oneself of an unnecessary tax burden is always immediately enticing, but it is vital to consider whether designating a certain area of your home is worth the potential benefit and the long term effects of such a decision. More information regarding the requirements for the home office income tax claim can be found on the official SARS website.