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When will I be able to claim home office expenses?
If you are an employee who works from home and has set aside a room to be occupied for the purpose of “trade”, e.g. employment, you may be allowed to deduct certain home office expenses for tax purposes calculated on a pro-rata basis. Provided that you meet the requirements as set out in the Income Tax Act, section 11(a) read in conjunction with sections 23(b) and 23(m). See below for more information on section 23 (b).
What are the requirements for claiming home office expenses?
Section 23(b) of the Income Tax Act states that a tax deduction for home office expenses is only allowed:
- If the room is regularly and exclusively used for the purposes of the taxpayer’s trade e.g. employment and is specifically equipped for that purpose. The home office must be set up solely for the purpose of working.
- If the employee’s remuneration is only salary, the duties are mainly performed in this part of the home. It therefore means you perform more than 50% of your duties in your home office.
- Where more than 50% of your remuneration consist of commission or variable payments based on your work performance and more than 50% of those duties are performed outside of an office provided by your employer.
What constitutes home office expenditure?
Typically, the type of home office expenditure referred to in section 23(b), namely:
- rent of the premises;
- cost of repairs to the premises; and
- Expenses in connection with the premises.
In addition to these expenses, other typical home office expenditure that may qualify for deduction in terms of section 23(m) include:
- Rates and taxes;
- Office equipment; and
How do I calculate home office expenses?
The tax deduction is calculated for the area of the home utilised for trade e.g. employment purposes. Home office expenses relating to the premises are calculated on a pro-rated basis (square meters of area of home office versus total square meters of your home).
What is the method of calculating home office expenses?
Should you qualify for a deduction in respect of home office expenses, the amount must be calculated on the following basis: A / B x total costs, where:
- A = the area in m² of the area specifically equipped and used regularly and exclusively for trade e.g. employment
- B = the total area in m² of the residence (including any outbuildings and the area used for trade in the residence)
- Total costs = the costs incurred in the acquisition and upkeep of the property (excluding expenses of a capital nature).*
*Note that only expenses relating to the premises must be apportioned based on floor area (such as for example rent, interest on bond, rates and taxes, cleaning, etc.) Expenses that do not relate to the premises (such as wear and tear on equipment and furniture) do not need to be apportioned based on floor area.
Where will I claim home office expenses on my Income Tax Return (ITR12)?
Should you qualify for a deduction in respect of a home office; enter the amount calculated next to the source code 4028 (Home Office Expenses) in the “Other Deduction” container on your Income Tax Return.
I want to complete the home office expenses but it does not reflect on the form wizard questionnaire?
When completing the form wizard on the Income Tax return (ITR12), answer the question “Did you incur any expenditure that you wish to claim as a deduction that was not addressed by the previous questions?” (Select ‘Y’ or ‘N’). If yes, the section for ‘Other Deductions’ will be added to the return.
What are the Capital Gains Tax implications if I sell my house used partially for trade?
The first R2 million of a capital gain or capital loss on the disposal of a primary residence must be disregarded for Capital Gains Tax (CGT) purposes. If the proceeds in respect of the disposal of the primary residence are R2 million or less, any capital gain thereon must also be disregarded. However, if a primary residence has been used by a taxpayer partially for purposes of carrying on a trade, such as in the case of a taxpayer that makes use of a home office, then the primary residence exclusion of R2 million must be apportioned for the non-residential use; and the R2 million-proceeds rule for disregarding any capital gain, does not apply to the part of the premises used for purposes of trade. The apportionment will be based on the proportion of the floor area used for business and private use, and must be applied to the total capital gain to arrive at a private portion of the capital gain, and a business portion of the capital gain. For more detail, click here.