The working environment has vastly evolved and “working remotely” has become the new norm for many employees. The South African Revenue Service (SARS) allows employees to deduct their home office expenses from their taxable income, under certain specific conditions.

Employees may be able to deduct home office expenses if the following conditions, amongst others, are met

• The employee has permission to work from home.
• The employee spends more than 50% of their total working hours working from home.
• The employee has a dedicated area of their home which is used exclusively for work. A separate room must be maintained to qualify for the deduction.
• The room must be specifically equipped for the employee to work productively.

Home office expenses may include the following:

• Rent of the premises;
• Cost of repairs to the premises; and
• Expenses in connection with the premises including internet, rates and municipal costs, wear and tear, etc.
• Interest on mortgage bond.

To determine the applicable portion of home office expenditure to deduct, calculate the total square meterage of the dedicated working area in relation to the total square meterage of the house and convert it to a percentage. Apply this percentage to the home office expenditure to calculate the portion that is deductible.

It is important that supporting documents are kept to substantiate the percentage of home office expenses claimed. These would include a letter from the employer, invoices, excel spreadsheets noting the calculation of the claim, etc.

It should be noted however that while the home office tax deduction will reduce the tax liability of the employee, it does have a negative tax impact on the calculation of capital gains tax should the employee decide to sell their property.

The Income Tax Act requires the capital gain to be apportioned between primary residence use and business use. This apportionment must consider the length of time that the home office was used as a portion of the entire period of ownership, as well as the size of the home office compared to the size of the entire property.

For illustrative examples and more information on the above please click here to visit the SARS website.

Aneesa Khan | Finance Manager