Are home office expenses tax-deductible?

“Are home office expenses tax-deductible?”

 

With more and more people working from home, we often get asked what the tax benefits are? The truth is that the criteria are quite strict, and the benefits may not always be that substantial.

Let us break it down for you.

 

  1. The office that you are claiming the deduction on must be appropriately equipped and used regularly (i.e., more than 50% of the time) and exclusively for work purposes. This means that if you maintain a home office, but you only work in it on weekends or a few days a week, then you won’t qualify.
  2. Most of us who have worked from home in the last 18 months would probably meet the first highlighted requirement of “regularly”, in that on average we probably worked more than 50% of the year at home; but
  3. The second requirement of Exclusively for work purposes means that if you don’t have an office or a workspace that only you use, specifically for work, then you won’t qualify.
    1. This means that if you use your dining room table during the day as your workspace, you won’t qualify (it is not used exclusively for work purposes); or
    2. if you share your workspace with your partner, you won’t qualify (it is not used exclusively for your work purposes).

 

  1. If you are comfortable that you meet the above requirements, the next test is whether the tax deduction is actually worth all the effort involved, bearing in mind that:
    1. You need to be a registered taxpayer who submits an annual income tax return.
      1. Not all employees are registered taxpayers and need to submit tax returns.
      2. There are also costs involved in submitting tax returns.

 

  1. SARS appear to be taking a very hard line on allowing this deduction, and they have stated that your return will be audited, so again there will be costs involved, plus you need to make sure that you meet the requirements in point 1 above, given that SARS will audit your return if it is the first time that you are claiming the deduction.

 

  1. What constitutes home office expenditure?

 

Typical home office expenses are:

 

  1. rent of the premises.
  2. cost of repairs to the premises; and
  3. Expenses in connection with the premises.
  1. Phones.
  2. Internet.
  3. Stationery.
  4. Rates and taxes.
  5. Cleaning.
  6. Office equipment; and
  7. Wear-and-tear.

 

The burden of proof that an amount is deductible from a taxpayer’s income lies with the taxpayer.

 

  1. 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 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

You can use the excel template that we created to actually see whether the deduction will be worth all the effort.

https://www.118accounting.co.za/resources/home-tax-refund-calculator/

 

Want to grow your business? Our Free Resources will Help