The year 2020 has seen a drastic change in our lifestyle both professional and personal as the world tries to contain and control the COVID-19 outbreak. The most notable change came when the South African government imposed a national lockdown on the 26th of March. All non-essential employees were forced to work from home and were urged to keep working from home where possible as the lockdown levels decreased, and businesses were allowed to open systematically.
So, the question is, are you allowed to deduct home office expenses against your taxable income? Yes, you are, granted that you meet the requirements as set out by SARS.
What are the requirements?
- Your employer should allow you to work from home.
- More than half of your total working hours should be done from your home office.
- You should have a specific area in your home that is used only as a home office. This area should also be equipped with all the necessary equipment to perform your work tasks. Using your dining room table to work from does not meet the requirements of an area that is only used for work related functions.
Are you allowed to deduct all expenses related to your work?
This depends on the type of income that you receive. There are two categories of employees as defined by SARS:
Group 1 Salaried employees – This means that you receive a fixed monthly salary and that any variable income (such as commission) makes up less than 50% of your total monthly income.
Group 2 Commission earners – This means that your variable monthly income makes up more than 50% of your total monthly income.
Which expenses may you deduct?
Home Office Expenses (Group 1 and 2):
- Rent payments / Interest on bond
- Repairs to the premises
- Rates and taxes
- Wear and tear
The deductible portion of these expenses is calculated based on the portion of the Home Office in relation to the Home. For example, the Home is a total of 500sqm while the Home Office is 50sqm. This means that all of the above expenses should be multiplied by 10% (50/500*100).
Other Related Business Expenses (Group 2 Only):
- Repairs to equipment
- Motor vehicle expenses
The biggest obstacle to being able to deduct home office expenses is the requirement to have a separate area in your home that is used solely for work.
A national state of disaster was declared in terms of section 27 of the Disaster Management Act and in terms of the regulations, for the period of lockdown, every person was confined to his or her place of residence. This resulted in employees being bound to work from home without choice.
Generally, the rules on conflict of laws recognise the principle of ‘overriding mandatory provisions’ of national law. The ministerial directives however, clearly override the terms and conditions of most employment agreements and the question is to what extent do these measures impact on the tax requirements referred to above. In my opinion it could be argued that an employee working from home due to the lockdown, may deduct home office expenses in the 2021 tax return.