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Tax deductions

Home office tax deductions​

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Russell Knight CA(SA), an OfferZen community member, shares his insights on home office tax deductions.

Is there a difference in tax treatment for a home office if I am a salaried employee vs a contractor?​

Yes, there is a difference in the treatment if you are:

  • A fixed-salary employee (>50% of your remuneration is a fixed salary)
  • A commission-based employee (>50% variable)
  • An independent contractor

The information below only applies to fixed-salary employees.

What constitutes a home office?​

A home office is a room that meets all of the following conditions:

  • It is used for the purpose of “trade” - this means that you must be using the home office for the purpose of your employment.

  • It is regularly and mainly used - this means that more than 50% of your working time in a particular year of assessment must be spent working in the home office. The unit of measurement is working days and vacation/leave (non-working days) are excluded from the calculation.

For example (Assuming there are 250 working days in the tax year):

  • If you worked 150 days of the tax year in your home office then 150/250 = 60%. Therefore you can claim a home office tax deduction.
  • If you worked 90 days of the tax year in your home office and were on leave for 20 working days then 90/(250-20) = 39%. Therefore you cannot claim a home office tax deduction.
  • If you worked for Employer A for 100 working days of the tax year at the employer's premises. Then you move to employer B and worked from home for 50 days in a home office.
    50/250 =20%. Therefore you cannot claim a home office tax deduction.
  • It must also be exclusively used - this means that you may not use the home office for any other purpose other than trade or work function, except for very trivial usage. This requirement is applied strictly and applies to use after working hours and on weekends. In many cases, this factor will prevent a deduction, as many people use their home office for other purposes outside of working hours.

For example

  • Taking occasional personal phone calls whilst in your home office is regarded as trivial use and should not impact a claim.
  • If your home office is used as a guest bedroom then it is not exclusive use and you cannot claim.
  • If your home office also serves as a storage room for linen in a cupboard then you need to exclude the linen cupboard from the home office m2, and claim for the remaining portion.
  • Lastly it must be specifically equipped - this means that the room must house the equipment needed for employment. This would differ depending on the nature of the employee's work. For a regular knowledge worker, this would include items such as a workstation, chair, computer and communication equipment.

What expenses could qualify for home office tax deduction?​

In general, you should not be thinking about deductions as mimicking an office-based work environment such as coffee being supplied and shared bathroom facilities.

The focus is on the use of the home office space itself and the building in which it is located.These expenses include:

  • Rent of your premises (if you are renting)
  • Cost of repairs
  • Rates
  • Cleaning costs
  • Security costs
  • Building insurance
  • Office desk and chair wear and tear allowance.

What expenses would not qualify for home office tax deduction?​

  • Improvements: This includes building an additional room on to the home office or changing the home office. A common example of an improvement would be an alternative energy supply that is wired into the electricity circuit of your property.
  • Interest on your mortgage: From the 2023 tax year onwards, this could be disputed, however.
  • Items that aren’t connected to the premises, even if they're required to perform your trade:
    • Water
    • Household contents insurance
    • Internet
    • Stationery
    • Tea, coffee and refreshments

How do I calculate the amount I can deduct?​

The formula for working out your deduction is: Deduction = (HomeOffice m2 / AllBuildings m2) X (QualifyingExpenses)

  • All buildings on the property need to be taken into account with regard to total floor area (including garages, outbuildings). Land or plot size is not relevant for the calculation.
  • The area calculation must be based on accurate measurements and cannot be an estimate (the formal house plan/drawings would be best, but are not a prerequisite).
  • No portion of kitchen or bathroom facilities can be considered part of the home office m2, as they are not used exclusively for trade.

Where do I submit my information for a home office tax deduction?​

  • A home office deduction falls under the “Other deductions” section of your ITR12 return.
  • When filling in the form generation Wizard at the start of the form, answer “Yes” to the following question: “Did you incur any expenditure that you wish to claim as a deduction that was not addressed by the previous questions?”
  • Then enter the deduction amount next to the relevant source code: 4028 (Home office expenses)

How likely am I to be audited after claiming for my home office expenses?​

  • SARS are likely to verify (via a desk audit at least) home office claims, especially in your first year of making such a claim.

  • If this happens, you should have the following documents ready:

    • Documentary proof that your employer requires or permits you to work from home e.g. a letter from the employer or contract if stated therein.
    • Photographs of your home office.
    • Floor plans of the property with dimensions.
    • Supporting documentation for qualifying expenses used in calculation e.g. utility bill etc.
    • Schedule of expenses claimed and details of apportionment calculation.
    • Schedule of dates detailing when home office was used during the year of assessment.
    • If renting – lease agreement + schedule of lease payments.

Can I claim home office expenses for past years if I qualify?​

You would need to request to reopen those years of assessments to correct them.

How do I deal with the other buildings/flats if I live in a complex or block of flats?​

The home office is apportioned only for the section that you pay levies on (your flat or unit). Other units and common property do not get taken into account in the calculation.

What happens if I sell the house in which I have been operating my home office?​

  • The first R2 million of a capital gain from the sale of a primary residence is exempt from Capital Gains Tax (CGT).
  • The portion of the residence claimed as a home office results in a tainting of this portion, as it was used for trade.
  • The home office portion of the residence will not be eligible for the R2 million exemption (but the full R2 million can still be applied to the rest of the property).
  • CGT will be applicable to the home office on a time apportioned basis (as the value of the property appreciates over time).
  • An average person will probably require the advice of a Tax practitioner to complete their tax return for the tax year in which their primary residence is sold if a home office deduction was claimed in the past.

For more information relating to the deduction of home office expenses, kindly refer to Interpretation Note 28 (Issue 3), published by SARS.

Information sources​

note

In a media release published by SARS on 1 July 2021, they advised taxpayers to carefully consider any claim for home office expenses before filing their income tax returns. An incorrect claim could result in the payment of interest and penalties by the taxpayer.

Disclaimer: The answers above are only applicable to individuals who are exclusively regarded as tax residents of South Africa. This is for information purposes only, and does not constitute professional tax advice. We urge you to seek independent tax advice to ensure that your tax circumstances have been properly considered. The information is only applicable to fixed-salary employees.