Tax relief benefits of working from home

The tax environment that all South Africans have been under while recovering from the Covid-19 lockdown has more recently been further stressed by a hefty fuel price hike. This happened just as many were planning to, or had, returned to the workplace full-time. While the flexible hybrid work model, which involves splitting work-on-premises and work-from-home, still prevails, the fuel hike may lead to a sentiment swing back to full-time work-from-home.

This is certainly the case in the UK, where it was found in a Randstad UK poll of almost 3000 workers that nearly half were 'trying to persuade their managers to allow them to work from home, more often to mitigate rising fuel costs.' Even the International Energy Agency, which South Africa joined in 2018, has recommended that its members introduce emergency measures to reduce the demand for fuel, including working from home.

Admittedly, as Stephan Lombard and Johann Bezuidenhout, Absa's Legal and Fiduciary Specialists concur, there are challenges when working from home, not least of which are 'abnormal' interruptions to the flow of work, which would not be found in an office environment. "Yet these, such as a dog barking or hadeda shouting, are part of the South African landscape, and we've come to accept those as acceptable. What isn't acceptable, however, is the escalating effect that the fuel price has had on the cost of living. For those who use transport or drive to work, and without a salary increase, the absorption of the extra Rands may be too much."

Lombard and Bezuidenhout suggest that part of the cost of living can be offset against personal income tax, but only if you work from home. This is pertinent currently because South Africans enter a new tax season on 01 July.

"For those who are not self-employed and working from home, a concern has been the impact of rising costs and how those reflect on their personal income tax. The good news is that the South African Revenue Services (SARS) allows employed individuals to deduct certain expenses that are incurred in maintaining a home office," says the two legal minds. "However, it can be rather tricky determining what is and isn't allowed and how to calculate the allowable deductions."

Lombard and Bezuidenhout have made the relative tax rebates easier to understand and reference the Income Tax Act Section 23(b), which states that a tax deduction for home office expenses will only be considered:

• If the room used is regularly and exclusively used for the purposes of your trade and/or job; and/or
• If you earn a salary, you must perform more than 50% of your duties in your home office. For commission earners, the same applies - more than 50% of your duties must be performed at home, not at your employer's offices.

"Typically, the types of home office expenditure referred to in Section 23(b) are those you may incur in relation to maintaining your home office, and you are allowed to claim these expenses in proportion," say Lombard and Bezuidenhout. Such expenses include:

• Rent of the premises or interest on the bond;
• Cost of repairs to the premises; and

• Expenses in connection with the premises, which could include:

  1. Rates and taxes

  2. Cleaning costs; and

  3. Electricity."

To work out how much can be claimed, Lombard and Bezuidenhout have provided a simple calculation:

"Divide the m² of your home office with the total area in m², of your residence and then multiply that answer with the total cost."

An example: If the home's square meterage is 100 m² of which 20 m² is used as an office, it means you may claim one-fifth of the rent/interest, the repairs to the premises, rates and taxes, cleaning and power.

Other typical expenditure that may qualify for a separate deduction in respect of maintaining a home office includes:

• General wear and tear on items used for trade purposes in the office;
• Office equipment, furniture and fittings, and repairs thereto;
• Phones;
• Internet; and
• Stationery.

"Unfortunately, you will need to prove these expenses," say Lombard and Bezuidenhout, which is why they recommend individuals intent on declaring such expenses keep all relevant invoices and statements or copies thereof. "When submitting your income tax return, use source code 4028 (home office expenses) to claim these deductions.

"There is, however, no free lunch! If you do claim home office expenses on your annual income tax return, in the event of your selling your primary residence, the overall capital gain or loss will be apportioned between the floor area of the home office and that of the residence itself. Be prepared and read up on the tax regime so that you fully understand the implications of claimed deductions relative to working from home."