More and more employers are allowing salaried employees to work from home to avoid wasting productive hours while commuting. Such employees may claim a home office deduction (allowed for under the “Other Deductions” section of the personal income tax return or ITR12 form) if certain strict requirements are met.
The deductibility of these expenses is determined by section 11 (in particular paragraphs (a), (d) and (e), read with sections 23(b) and 23(m) of the Income Tax Act.1 The requirements of all these provisions must be met before the relevant employee will qualify for the home office deduction.
In general, to qualify for this deduction, the employer must allow the employee to work from home and the employee must spend more than 50% of their total working hours working from home. It is important to note that the employee must have a specific area in the home that is used exclusively for this purpose (such as a separate office or study) and this area must be specifically equipped for the employee’s trade (for example a mechanic’s tools, an architect’s drawing board or a doctor’s examination room equipment). These requirements apply to both commission earners (where more than 50% of total remuneration is either from the commission or some other variable form based on work performance) and normal salaried employees (with variable payments making up less than 50% of his/her total remuneration).
To calculate the home office deduction, the employee first needs to calculate the total square meterage of the home office in relation to the total square meterage of the house as a percentage and apply this percentage to the home office expenditure. These calculations, as well as copies of all relevant invoices, must be kept by the employee claiming these deductions should the South African Revenue Service request supporting documentation.
The type of expenses that can be claimed include pro-rated deductions based on rent, the interest of mortgage bonds, repairs to the home, and all other expenses relating to the employee’s home. In addition to these expenses, other typical home office expenditure includes phones, stationary, rates and taxes, cleaning, office equipment and wear and tear.
Employees that do not earn a commission but who spend the majority of their time on the road visiting clients and perform their duties mainly at their clients’ premises and as a result do not qualify for the home office expenditure deduction. Sole proprietors or freelancers who work from home can automatically deduct all home office expenses and do not have to meet all the requirements as set out above.
The takeaway is that employees who work from home should carefully consider whether they meet all the requirements in order to claim the home office expenditure deduction.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)