Home office deduction for salaried employees explained.
Work culture has evolved massively and “flexible employment” has become the new buzz term. Many workers are given the option to work from home to avoid productive time being lost.
SARS allows such employees to deduct their home office expenses within the “other deduction” section of the ITR12 form. This is however, only allowed under certain specific conditions.
It is important to understand that the situation is different for sole proprietors or freelancers who also work from home. They can automatically deduct all their home office expenses and do not need to work through the same stringent set of conditions applied to employees to see whether they qualify for a deduction. The relevant portion of home office expenses can simply be reflected within the “trade income” section of the ITR12 form.
What are the requirements to deduct home office expenditure?
- The employer must allow the employee to work from home.
- The employee must spend more than half of their total working hours, working from their home office.
- The office must be specifically equipped for the employee’s trade i.e., it must be specially fitted with the relevant equipment required for the employee to perform his or her work.
- The employee must have and area of their home which is used exclusively for this purpose. (Employees who meet clients in their dining room at home would not qualify).
What expenses can be deducted?
Firstly, one must look at the employee’s remuneration structure to confirm whether he or she earns more than 50 % of total remuneration either from commission or some other variable form based on work performance or is a normal salaried employee with variable payments or commission making up less than 50 % of his or her total remuneration.
- Commission earners:
They 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 relation to their house. In addition, they can also take other commission related business expenses, such as telephone, stationery and repairs to the printer into account.
- Salaried employees with variable payments or commission making up less than 50 % of their total remuneration:
They can only claim pro-rated deduction based on rent, interest on mortgage bond, repairs to the premises, rates and taxes, cleaning, wear and tear, and all other expenses relation to their house.
How to calculate the home office deduction:
First calculate the total square meterage of the home office in relation to the total square meterage of the house and then convert this to a percentage. Then, apply this percentage to the home office expenditure to calculate the portion that is deductible.
Example:
John is an accountant who works for company ABC. His remuneration only consists of a salary. His company promotes a flexible work culture and allows John to work from home three days a week. He has a separate office at home which is fitted with a computer and printer, which he uses exclusively for his accounting work. The computer and printer were purchased two years ago for R12 000 and R8 000, respectively. His office is 20 m² and the floor space of her entire home, including the office, is 200m².
Assuming that SARS allows for a three-year deprecation period for the computer and printer. Also during the 2019 tax year, he incurs the following expenditure:
- R150 000 interest on mortgage bond.
- R40 000 rates and electricity.
- R6 500 repairs and maintenance.
- R8 000 cell phone expenses.
Based on the above, John qualifies for a home office deduction. The square meterage of his office (30 m²) is 10% in relation to his house (300m²). Therefore, John’s office deduction for the tax year can be calculated as follow:
- 10 % x (R150 000 + R40 000 + R6 500) = R19 650
(Note that since he is not a commission earner, his cell phone expenses are not deductible)
With John being a salaried employee, he would enter his home office expense claim within the “other deduction” section of the ITR12.
Lastly, SARS can request supporting documents from the taxpayer to back up their home office deduction. Taxpayers must be aware that they have to submit scanned copies of invoices as well as all relevant calculations to substantiate the percentage of home office expenses claimed. The taxpayer must also ensure that the supporting documents can easily be reconciled with the home office claim on their ITR12 return. If the relevant supporting documents is unclear or insufficient, SARS will disallow the full deduction claimed. Please forward any queries you may have in this regard to Mazars Port Elizabeth at taxpe@mazars.co.za.