How to Claim Home Office Expenses from SARS
Following the COVID pandemic, work office culture has changed dramatically, with many employers opting for a ‘stay at home’ policy. Remote working has become the new buzzword, and for many South Africans, understanding how to claim home office expenses from the South African Revenue Service (SARS) can add to the benefits of working from home.
To help you understand how to enjoy significant tax savings, we’re sharing how you can claim these expenses.
Understanding Home Office Expenses
Many South Africans are unaware that if you work from home, you can claim home office expenses, including costs associated with maintaining a dedicated workspace. These can range from a portion of your rent to utilities and office supplies. However, to be able to claim for these 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
Section 11 of the Income Tax Act 58 of 1962 governs how you can claim your home office expenses as a tax deduction. However, this works alongside Section 23, which sets out what you can’t deduct, especially if you’re an employee working from home. These two sections work together when deciding what helps you qualify.
Section 23(m): Limitations for Employees and Office Holders
If we take a closer look at Section 23(m), it shows that only certain expenses are allowed, unless you are someone who earns commission. Under this Section, here are deductions that are allowed:
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
In Section 23(b), you need to make sure that part of the premises is occupied for the purpose of trade in order for you to qualify for deductions.
Specifically equipped for trade purposes.
Regularly and exclusively used for trade.
Is the interest on my mortgage deductible?
Section 23(m)(iv) creates an exception. It allows you to claim home office expenses under sections 11(a) or 11(d), as long as those expenses aren’t already blocked by section 23(b).
However, things get tricky with interest on loans used to buy your home. That interest usually falls under section 24J (not 11(a)), which means it doesn’t qualify for the home office deduction exception in section 23(m)(iv). As a result, the interest related to your home office is generally not tax-deductible for employees.
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 be enough. You should use the home office for a significant portion of your working hours.
Calculating the Deductible Amount
You need to determine the percentage of how much your home is used for office purposes before you can calculate the deductible amount. You can do this by dividing the area of your home office by the total area of your home.
Example Calculation:
Total home area: 150 square metres.
Home office area: 15 square metres.
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 worked out in the same way which will be based on the portion of your home 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
If part of your home is used as an office, it could affect Capital Gains Tax (CGT) when you eventually sell your property. The portion used for your work may not qualify for the full primary-residence tax break, meaning you could pay CGT on that part.
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.
What Documents Do You Need To Submit?
As previously mentioned, you will need to submit the following supporting documents:
Employment contract or letter from Employer confirming the use of a home office. This will need to state why the employee (you) are required to work from home, as well as whether an office is provided at the employer’s premises.
A schedule of home office expenses for the time period (e.g., rent, electricity, water, repairs, internet, cleaning).
The square metre size of your home office and the total size of your home (including outbuildings).
A utility bill showing your physical address.
Proof that utility bills or the lease agreement are in your name, or an affidavit if this is not the case.
However, keep in mind that SARS may require additional documentation if they deem it necessary or reasonable.
How Long Does SARS Take To Verify Documents?
The verification process takes about 21 business days from the date that you have submitted your supporting documents. However, this process may take longer if they require additional documentation.
How Do I Submit Supporting Documents To SARS?
Whether you are capturing the relevant information or rectifying any errors, you are able to correct and submit your tax return through eFiling, the SARS MobiApp, or you can fist your nearest SARS branch.
Key Points To Remember
Before you submit your supporting documents, keep the following key points in mind:
The verification process can be delayed if you do not submit the relevant supporting documents on time.
SARS only accepts documents in standard A4 format. For alternative formats, special arrangements will have to be made with an official.
The Takeaway
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.
