How working from home can benefit you in the 2021 tax season

South African Revenue Service (SARS) has recently announced that employees who work from home can claim home office costs and tax deductions. This as a number of major South African corporates have informed their employees that they’ll be working from home indefinitely amidst the global coronavirus

Who will be able to claim tax deductions?

Typically, only people who earn a commission (at least 50% of your gross income) or are independent contractors claim for home-office expenses. However, this year SARS will allow full-time employees to also claim if they have worked from home for extended periods of time, i.e. in excess of 50% of the tax year. This means that you would have to work from home at least until the end of September, if you left the office at the start of the national lockdown. Note that these claims can only be submitted during next year’s tax season as it falls within the current tax year that runs from March 2020 until February 2021.

When will someone be eligible to claim?

According to the Income Tax Act, an employee can claim tax deductions related to home office expenses when they are:

  • Earning a salary but using their home office exclusively and regularly to perform their duties for their employer.
  • Are spending more than 50% of their total working hours working from the home office. Working from home until September, for the tax year ending 28 February 2021, would make someone eligible in this regard.

SARS emphasised that to be able to claim, an individual will have to make use of a dedicated workspace/room and not simply a dining room table.

What expenses can be claimed?

Some of the expenses an individual will be able to claim for a home office include:

  • Part of the interest on their bond, or part of the rental of the home, and municipal rates and taxes, such as water and electricity. The deduction granted will take into account the floor space of an individual’s home office, compared to the total floor area of the house. For example, if the home office is 20 square metres and the house is 200 square metres then an individual will be able to deduct 10% of the qualifying expenses.
  • Stationery and data costs.
  • Wear and tear on office equipment.

How will you be able to claim?

Claiming for home office expenses can be completed through an ITR12 tax return form. Through this process, an individual will have to provide proof of the expenses in the form of invoices or statements. The days spent working from home furthermore has to be indicated to prove that more than 50% of total working hours were spent working from home.

Any downsides?

It is important to note that if an individual owns their home, claiming home office expenses could cost them in extra capital gains tax (CGT) when the property is sold. According to SARS, the first R2 million of primary residences does not have any capital gains tax. However, if an individual indicates to SARS that part of the property is not a residence, but an income-generating office, that part may be excluded from the capital gains tax break. Therefore, if an individual claims 10% of their home’s floor space as an office, then 10% of the eventual selling price could be liable for CGT. The CGT’s inclusion rate for individuals is 40% (i.e. your capital gain will be included in your income tax calculation at a 40% inclusion rate). However, SARS has indicated that the CGT calculation takes into account the length of time over which an individual has used their home office.