The new tax season is upon us. It’s time to get our affairs in order. Many of you will have worked from home during this Covid lockdown and may continue to do so in the future. There are tax advantages in claiming home office expenses. We share the SA Revenue Service Home Office guidelines for claiming home office expenses. We provide this for your information only, and this should not be regarded as tax advice. If you need help with your income tax, get in touch with us at MyWealth Investments. We’d love to assist you.
SARS recently issued guidelines to assist employees in claiming deductions for expenses incurred in the performance of their duties.
Requirements for claiming home office expenses:
Section 23(b) of the Income Tax Act, only allows home office expenses as a deduction, if: The room is used regularly and exclusively for purposes of the trade or employment of the taxpayer. For employees only earning a salary, more than 50 % of their duties should be performed in the home office. An employee’s earnings constitute more than 50% commission or variable income and more than 50 % of those duties are performed outside of an office provided by the employer.
What expenses may be claimed? (Section 23(b)):
- Premises rental
- Interest on bond
- Other running expenses
- Rates and Taxes
- Office equipment
- Wear and Tear allowance on productive assets
Calculation of home office expenses which may be deducted:
The tax deduction is calculated specifically with reference to the area of the home utilised for employment purposes on a pro-rata basis.
Formula for calculation of home office expense deduction:
A / B x total cost, where –
A = Area (in m2) of the area specifically equipped and used regularly and exclusively for trade/employment
B = The total area (in m2) of the whole residence (including any outbuildings)
Total costs = Costs relating to the acquisition and upkeep of the property (not capital in nature)
Claiming home office expenses on your Income Tax return:
In the Form Wizard, ensure that you answer “Y” (Yes) to the question “Did you incur any expenditure that you wish to claim as a deduction that was not addressed by the previous questions”. Under the section “other deductions” on your Income Tax return, please use the source code “4028”: Home Office Expenses.
Capital Gains Tax:
The sale of a primary residence triggers CGT when the capital gain exceeds R2 million.
If a primary residence has been used by the taxpayer partially for purposes of carrying on a trade, the R2 million exclusion should also be apportioned. The apportionment is based on the floor area used for private purposes, as opposed to the floor area used for trade/business/home office.
If expenses are claimed for a home office that constitutes 10 % of the floor area of the primary residence, upon the eventual sale of the property, only R1.8 million of a potential capital gain will be disregarded at that time.
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