When Can You Deduct Home Office Expenses?

Posted by Bernard Schoeman on 07 February 2018.



Bernard Schoeman

CA(SA), Post Graduate Diploma Accounting, BCom

The Tax Shop Head Office

More about Bernard Schoeman

Bernard studied BCom majoring in information systems and accounting at the University of Cape Town and qualified as a Chartered Accountant (SA) in 1997 after completing of his articles with Deloitte & Touche. Bernard has extensive international and local experience having worked for nearly three years with financial institutions in the UK (London) and having audited numerous companies listed on the JSE in South Africa. He is a member of the South African Institute of Chartered Accountants.
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The working landscape has changed.  More employees than ever before work from home in order to avoid time wasted commuting to/from the office.  People working for themselves also elect this option to avoid paying office rentals.  The good news is that SARS will allow a deduction for home office expenses, but, the rules are not the same for everyone.  SARS has laid out its approach to home office expenses in Interpretation Note 13 and Interpretation Note 28, both issued in March 2011 with updated revisions. These interpretation notes specifically deal with sections 11, 23(b) and 23(m) of the Income Tax Act.
Before discussing who may claim home office expenses, let’s take a quick look at the basic condition which has to be in place for any taxpayers to claim expenses for working from home.
The Basic Condition for Deduction of Home Office Expenses
For a taxpayer to claim home office expenses he/she must have a clearly defined area in their home used exclusively for their work.  For example, generally, a separate room which operates as an office, equipped with the relevant instruments, tools and equipment and where clients (if applicable) are met, is required.  Taxpayers who work and/or meet clients in areas other than the designated office space in their home would not qualify.
People Who Work for Themselves
Individuals who have their own businesses (sole proprietors) are entitled to claim actual home offices expenditure under the “Local Business, Trade and Professional Income” section of their ITR12.  The same applies to partnerships and independent contractors.
Generally, such taxpayers can claim all actual expenditure incurred with their trade (S11(a)), as well as a portion of overall home expenses which are applicable to their office use (refer to the calculation below).
People Who Work for an Employer
Employees may claim home office expenses if the following conditions are met:
  1. A condition of employment is to carry the cost of keeping a home office as the employee’s central business location and the employer must allow the employee to work from home.
  2. The employee must spend more than half of their total working hours working from their home office.
Such taxpayers may deduct home office expenses under the “Other Deductions” section of their ITR12.  The extent to which employees may claim home office expenses is furthermore dependent upon whether they earn commission income or not:
Employees who earn more than 50% commission:
These are salaried employees who take more than 50% of their total remuneration from commission or some other variable form which is based on their work performance.  Such employees may claim rent, interest on bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house as well as other commission related business expenses (e.g. telephone, stationery, repairs to printer, etc.).  In some ways, SARS treats such employees in the same way as people who work for themselves.
Employees who earn less than 50% commission:
These are salaried employees with variable elements or commission making up less than 50% of their total remuneration. Such employees can deduct rent, interest on bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to their house only.  Due to the limitations imposed by S23(m) of the Income Tax Act, such employees cannot also deduct actual costs incurred for running the office (e.g. telephone, stationery, repairs to printer, etc.).
The Calculation of Home Office Expenses
You need to calculate the total square meterage of the home office in relation to the total square meterage of the house as a percentage and apply this percentage to the overall home expenses which are applicable.
Example 1 – Sole Proprietor
Bob runs an advertising agency from his house.  He has converted his garage into an office and incurred the following expenses during the tax year:
–  Printing costs: R80,000
–  Repairs to printers: R3,000
–  Depreciation on printers: R4,000 (assume same as for SARS)
–  Salaries and wages: R40,000 (he employs one person to help him)
–  Cell phone costs: R15,000 (50% is for business use).
–  Home expenses:
.  Interest on bond: R20,000
.  Repairs to house: R10,000
.  Electricity and water: R25,000
.  Rates and taxes: R15,000
.  Cleaning: R12,000
His garage is 10m2 and the total space of his house (including the garage) is 100m2.  The percentage space of his garage is therefore 10%.  In Bob’s ITR12, he would deduct the following expenses under the “Local Business, Trade and Professional Income” section:
–  Printing costs: R80,000
–  Repairs to printers: R3,000
–  Wear and tear: R4,000
–  Salaries and wages: R40,000
–  Cell phone costs: R7,500 (R15,000 x 50%)
–  Home office expenses:
.  Interest on bond: R4,000 (R20,000 x 20%)
   .  Repairs to house: R2,000 (R10,000 x 20%)
   .  Electricity and water: R5,000 (R25,000 x 20%)
   .  Rates and taxes: R3,000 (R15,000 x 20%)
   .  Cleaning: R2,400 (R12,000 x 20%)
Example 2 – Employee
Sally works full-time for an IT company, receives a fixed salary only and is allowed to work from home.  She has converted a spare room in her house to an office which is equipped with computers, printers and an internet connection. All the equipment in her office was bought 12 months ago for R36,000 and it can be assumed that SARS permits a 3-year wear and tear deduction on such assets.  She also purchased a second-hand desk and chair for R5,000 for her office (it can be assumed SARS permits a write-off period of 5 years for such assets). Her office is 15m2 and the total size of her house (including the office room) is 100m2 (office is therefore 15% of total space). She incurred the following expenses during the tax year:
–  Interest on bond: R24,000
–  Repairs to house: R10,000
–  Electricity and water: R12,000
–  Rates and taxes: R10,000
–  Cleaning: R9,000
–  Cell phone costs: R8,000 (assume 50% is for work purposes)
–  Stationery costs: R2,000
–  Repairs to computer: R1,000
In Sally’s ITR12, she would deduct the following home office expenses under the “Other Deductions” section:
–  Wear and tear on office equipment: R12,000 (R36,000 / 3)
–  Wear and tear on office furniture: R1,000 (R5,000 / 5)
–  Interest on bond: R3,600 (R24,000 x 15%)
–  Repairs to house: R1,500 (R10,000 x 15%)
–  Electricity and water: R1,800 (R12,000 x 15%)
–  Rates and taxes: R1,500 (R10,000 x 15%)
–  Cleaning: R1,350 (R9,000 x 15%)
Sally will not be able to claim any cell phone costs, stationery costs and the repairs to the computer as these are all prohibited by section 23(m).  However, if more than 50% of Sally’s total remuneration was in the form of commission income, then she would be able to claim all of the above plus the following under “Other Deductions” on her ITR12:
–  Cell phone costs: R4,000 (R8,000 x 50%)
–  Stationery costs: R2,000
–  Repairs to computer: R1,000