How to Claim Home Office Expenses from SARS in 2024
Working from home has become a significant part of modern work culture, especially in recent years. For South Africans, understanding how to claim home office expenses from the South African Revenue Service (SARS) can lead to substantial tax savings. This guide will provide detailed insights into claiming these expenses, with practical examples and thorough explanations based on SARS' regulations.
Understanding Home Office Expenses
Home office expenses include costs associated with maintaining a workspace within your home. These can range from a portion of your rent to utilities and office supplies. To be eligible for deductions, you need to meet specific criteria set by SARS.
Typical home office expenses include:
Rent: A portion of your rent that corresponds to the area of your home office.
Utilities: Electricity, water, and cleaning costs.
Internet and Phone Bills: Costs related to your internet and phone usage for work.
Office Supplies: Stationery, printer ink, and other office-related supplies.
Office Equipment: Depreciation of office equipment such as computers, printers, and furniture.
Repairs and Maintenance: Costs for repairs and maintenance of the home office space.
The General Rule for Deductibility
The deductibility of home office expenses is governed by Section 11 of the Income Tax Act 58 of 1962. The relevant sections (11(a), 11(d), and 11(e)) outline the positive tests for what can be deducted. These sections must be read in conjunction with Section 23, which lists prohibitions, particularly sections 23(b) and 23(m) relevant to home office expenses for employees and office holders.
Section 23(m): Limitations for Employees and Office Holders
Section 23(m) limits deductions for employees and office holders, allowing only specific deductions unless the taxpayer's income is primarily derived from commissions. For home office expenses, permissible deductions include:
Rental, repairs, and expenses related to the part of the premises used for trade, under sections 11(a) and (d).
Wear-and-tear allowances on non-permanent assets used for trade purposes, under section 11(e).
Section 23(b): Occupation for Trade Purposes
Section 23(b) stipulates that a part of the premises must be occupied for trade purposes to qualify for deductions. The part of the home used must be:
Specifically equipped for trade purposes.
Regularly and exclusively used for trade.
Is the interest on my mortgage deductible?
Section 23(m)(iv) excludes from the prohibition against deduction any deduction which is allowed under section 11(a) or section 11(d) in respect of expenses in connection with a premise to the extent that the deduction is not prohibited under section 23(b).
It depends on the facts, however, interest incurred on most loans used to acquire a premise will meet the requirements for deduction under section 24J and will therefore be deductible under section 24J and not section 11(a). If the interest expense meets the requirements in section 24J, it means the portion of interest incurred in connection with the part of the premises used for purposes of trade (the home office) will be prohibited by section 23(m) and is not deductible.
Specific Requirements for Deductibility
Specifically Equipped for Trade: The home office must be fitted with the necessary instruments and equipment required to conduct the trade. For example:
An architect: Drawing boards, blueprints, drafting tools.
A software developer: Computers, multiple monitors, ergonomic desk and chair.
A sales representative: Computer, phone, filing cabinets for client records.
Regular and Exclusive Use: The space must be used frequently and solely for business purposes. This means:
Exclusive Use: The home office should not double as a living room, guest bedroom, or any other non-business space.
Regular Use: Working from home one or two days a week might not suffice. You should use the home office for a significant portion of your working hours.
Calculating the Deductible Amount
To calculate the deductible amount, you need to determine the percentage of your home used for office purposes. This is done by dividing the area of your home office by the total area of your home.
Example Calculation:
Total home area: 150 square meters.
Home office area: 15 square meters.
Percentage of home used as office: 15/150 = 10%.
If your monthly rent is R10,000, the deductible amount for rent would be:
Rent: R10,000 * 10% = R1,000.
Other expenses can be calculated similarly, proportionate to the area used for business.
Claiming Home Office Expenses on Your Tax Return
When it comes time to file your tax return, you’ll need to include your home office expenses in the "Other Deductions" section of your income tax return (ITR12). Here’s a step-by-step process:
Keep Detailed Records: Maintain records of all expenses, including receipts, invoices, and a log of the days you worked from home.
Complete the ITR12 Form: When filling out your tax return, navigate to the “Other Deductions” section.
Calculate Total Expenses: Sum up all deductible expenses for the year.
Submit Proof: Be prepared to submit proof of expenses if SARS requests it. This includes your home office calculation, receipts, and any other supporting documents.
Practical Examples of Deductible Expenses
Electricity and Water:
Monthly electricity bill: R1,500.
Monthly water bill: R300.
Total utility cost: R1,800.
Deductible portion (10%): R1,800 * 10% = R180.
Repairs and Maintenance:
Cost to repair home office roof: R2,000.
Full amount deductible: R2,000 (since it's directly related to the home office).
Office Equipment Depreciation:
Cost of a new computer: R20,000.
Depreciation rate: 20% per annum.
Annual depreciation amount: R20,000 * 20% = R4,000.
Deductible portion (if used exclusively for work): R4,000.
Impact on Capital Gains Tax
Using a portion of your primary residence as a home office can have capital gains tax (CGT) implications when the property is sold. The part of the home used for business may not qualify for the full primary residence exclusion, potentially increasing your CGT liability.
Example:
Primary residence exclusion: R2 million.
Portion of home office usage: 10%.
Sale price of home: R3 million.
CGT calculation: If the gain on sale is R1 million, only 90% of the gain (R900,000) may be excluded, with 10% (R100,000) potentially subject to CGT.
Record Keeping
Maintaining accurate records is essential for substantiating any claims made for home office expenses. This includes keeping:
Receipts and invoices for all expenses.
Detailed records of the business use of the home office.
Logs of working days from home.
Conclusion
Claiming home office expenses from SARS involves understanding and navigating the specific requirements and limitations set out in the Income Tax Act. By ensuring that your home office meets the necessary criteria and maintaining meticulous records, you can optimize your tax deductions while complying with SARS regulations. By following this guide, you can confidently claim your home office expenses from SARS, making your work-from-home experience financially beneficial as well as convenient.
For more detailed information and guidance, consult SARS' Interpretation Note 28 and related resources available on the SARS website.
Consulting a tax professional can also provide personalized advice tailored to your specific situation, ensuring you get the maximum benefit from your home office expenses.