The Covid-19 pandemic had us all abruptly change the way we work and live within a very short amount of time and the end of this pandemic has yet to be determined. Many of us had to quickly set up a home office to work remotely as unprecedented lockdowns were imposed all over the world. The economy has also taken a hit and so has many of our pockets so we thought we would share this possible tax deduction as a bit of financial relief at the end of the tax year. Did you know that you may qualify for tax deductions if you had a separate room in your home or on your premises that is exclusively used as a home office?

With the possibility of having another pandemic on our heels and warning of future pandemics to come perhaps it is time you should invest in a proper home office. This might mean that you simply refurbish an extra bedroom into a fully equipped office or if you have no bedrooms to spare it might be worthwhile to build a separate office on your premises. Studies show that a separation between work and home is healthy to maintain boundaries and productivity and the best way is for a separate space to be allocated just for work. During these uncertain times flexible employment is becoming more common and more people are required or prefer to work from the comfort of their own house. This makes having a home office on your premises a great investment for you as well as it being a very attractive feature for future buyers. 

Below are the requirements to determine whether you qualify for a tax deduction:

• First, you will have to prove that you spend more than 50% of your work hours working from home. For example: If you work from home for 3 out of your 5 work days per week for the full tax year or maybe you worked at home for a full 6 months you qualify for home office deductions.

• Next you will have to determine whether you are a salaried employee, commission earner or sole-proprietor. If your total annual remuneration is made up of more than 50% in fixed salary you are  a salaried employee, if your total annual remuneration is made up of more than 50% in variable payments or commissions you are a commission earner and if you are an exclusive business owner you are a sole proprietor. These three types of workers now get split into two groups where sole proprietors and commissions earners are allowed additional deductions compared to the salaried employees.

• Now that you have determined that you work the appropriate amount of time from home and you know which group you fall under you need to verify whether your home office adheres to the following requirements:

• You must have an area in your home which is used exclusively for the purpose of your work. For example, if you meet clients in your dining room at home this would not qualify. A separate office, which is used specifically for your work, must be maintained to qualify for the deduction.

• The office must be specifically equipped for your trade, i.e., it must be specially fitted with the relevant instruments, tools and equipment required for you to perform your work. For most of us this would mean that a desk is set up with a computer and a stable internet connection.

• You will have to detail the square meters of your home office on a floor plan as this will be used to determine what percentage of the office expenses will qualify as a deduction against taxable income. - (SAIT) 

For example: If your dedicated office space is a room inside or outside your house with a footprint of 10m² and the total area of your house including this office space is 100m² you qualify for a 10% deduction.

Expenses deductible 

If all the above criteria is met you qualify for the following deductions based on your income classification group:

“The first group (i.e., commission earners and sole proprietors) can claim pro-rated deductions based on rent, interest on mortgage bond, repairs to the premises, rates and taxes, cleaning, wear and tear, and all other expenses relating to their house. In addition, they can also take other commission-related business expenses, such as telephone, stationery and repairs to work equipment, into account.

The second group (i.e., salaried employees) can only claim pro-rated deductions based on rent, interest on mortgage bond, repairs to the premises, rates and taxes, cleaning, wear and tear, and all other expenses relating to their house.” - (SAIT) 

These expenses are deducted in terms of the percentage ratio of your home office in relation to your home.

Example

Veronica is a social media marketing advisor who works for Media Market (Pty) Ltd. She earns only a salary and no other form of remuneration. Her company promotes a flexible work culture and allows Veronica to work from home three days a week. She has a spare room at home which she has fitted with a computer and stable internet connection, which she uses for the sole purpose of her marketing job. Based on this, Veronica qualifies for a home office deduction.

Her office is 15m² and the floor space of her entire home, including the office, is 150m². 

During the 2020 tax year, she incurs the following expenditure:

R 216 000 expenses on the rental of the house

R 24 000 for  electricity & water expenses

R 24 000 cleaning costs

R 6 000 Security expenses

R 9 000 cell phone expenses

Based on the size of her home office the 15m² is 10% in relation to her house of 150m².

Therefore, Veronica’s home office deduction for the tax year can be calculated as follows (note that since she is not a commission earner or sole proprietor, her cell phone expenses are not deductible): (R216 000 + R24 000 + R24 000 + R6 000) = R 270 000 x 10% = R 27 000

It is very important to remember that SARS often requests supporting documentation to back up your home office deductions, so remember to keep copies of all the relevant invoices for the expenses.

If you are a homeowner you should also be aware of the impact of your home office deductions on your capital gains taxes, a calculation can be done in order to determine whether a home office deduction will still be beneficial in this regard. Please refer to the SAIT article for an example of this calculation.