During the Covid-19 pandemic it has become common for employees to work from home. Apart from the health benefits, there are other reasons for the increase in popularity of homeworking, such as more flexibility, less commuting, increasing productivity, and a cost saving by reducing workspace.
When determining the expenses relating to your home office that can be deducted consideration must be given to the positive and negative tests in the Income Tax Act 58 of 1962 (“Act”). The positive tests set out in sections 11(a), (d) and (e) deal with deductions that are allowed when determining taxable income. In contrast the negative tests in sections 23(b) and (m) deals with deductions which are not allowed.
Before you can claim a deduction for your home office a part of your home must be occupied for purposes of your trade. A trade includes employment and therefore employees may qualify. The part of the house used must be specifically equipped for purposes of the trade. If you are an office worker for example, you would need a workstation.
Your home office must regularly and exclusively be used for purposes of your trade. If you only used your home office occasionally you would not qualify. The requirement of exclusivity suggests that the part used for trade may not be used for any purpose other than your trade. Employees working from home must perform their duties mainly (i.e., spend more than 50% of their work time) in the part of their home occupied for purposes of trade.
To determine the deduction that may be claimed both the apportionment ratio and the expenditure that is subject to apportionment must be determined. Apportionment is based on the exact floor area of the entire premises compared to that part attributable to a home office. Permitted expenditure in connection with the premises may include, rent, repairs, interest on mortgage bond, rates, levies, electricity, and cleaning costs.
Expenditure on telephone charges, stationery, furniture, and IT equipment are not incurred in connection with the premises and while they may not qualify to be deducted under section 23(b), they may qualify for a deduction under section 11.
When claiming a deduction for expenses in connection with a premises taxpayers must be mindful that it will affect their R2 million primary residence capital gain tax exclusion. The primary residence exclusion will be apportioned for the non-residential use and will not apply to that part of the home used for purposes of trade.