Working from home during lockdown? How to make sure you get a tax break
- You may not want to hurry back to the office, if you have been working from home since the start of South Africa's lockdown.
- Stick it out a little longer, and you could qualify for a tax break on the expenses of working from home.
- You'll need to do some paperwork, and there is a potential downside if you sell your home.
- Here is what you need to know about claiming you home office expenses against tax.
- For more stories go to www.BusinessInsider.co.za.
Many South Africans who have been working from home since the start of lockdown have a solid financial reason not to hurry back to the office.
Under South African tax rules, the cost of working from home is an expense you can offset against the money you earn by doing so.
But if you go back to the office before the end of September, you may miss out.
Those who qualify can claim all their expenses in working from home, including airtime, electricity, and even a part of their rent or mortgage payments, say Remuneration Consultants South Africa's Darren Britz and Laurence Mbokwane.
That is automatically true for people who earn more than half their annual income on commission, or who are independent contractors.
But workers in "traditional employer-employee relationship earning a salaried income have the expectation and general understanding that the employer is responsible for business expenses," say Britz, an attorney, and Mbokwane, a tax consultant. People in that position may not claim their expenses – unless they work from home long enough.
"The most important test for claiming expenses is that the person must have spent at least 50% of their time in a tax year working from home.
"This means that people will have to continue working from home until at least the end of September for them to be able to claim (six months since lockdown)."
In that case, employees who cover their own costs can claim those costs back come tax time.
Here’s what you need to know:
You must have an actual home office
There is one important caveat to claiming costs against tax: you need to have a dedicated work space, and must be able to prove that it exists.
"This is not simply a table in the corner of a room. It must resemble an office when [the SA Revenue Service] comes knocking," says Remuneration Consultants.
"People who have been working from home temporarily and just 'made-do' in the short term (using the dining room table as their workspace) should abandon claims for tax deductions. We would not recommend they pursue this route seriously."
You can deduct costs like municipal rates and the interest you paid on your bond, but...
The tax deduction covers the floorspace of your home office, including what you pay for water and electricity, and rental, whether that is in the form of actual rent or interest on a bond.
The amount of the deduction is calculated with reference to the floor area of the home office relative to the floor area of your home, says Natalie Napier, a tax consultant with Evershed Sutherland.
If, for example, your home office is 20 square metres and your house is 200 square metres then you can deduct 10% of the qualifying expenses such as rates and taxes or interest payable on bonds. You can't deduct all your expenses.
...you have to do the paper work
You must keep careful records and details as the SA Revenue Service (Sars) can request proof of any deductions that are claimed, says Napier.
"It is important to appreciate that if the supporting documents are not in order, then Sars can disallow any claim for any deductions and then there may be interest and penalties imposed."
If your company pays for your expenses, it gets a little more complicated
Things get a little more complicated if a company covers the cost of working from home with upfront payments.
"This has the risk of attracting fringe benefits tax. It becomes a fine line whether the costs were incurred to fund business expenses or if it was used for the employee’s personal benefit," says Remuneration Consultants.
"The ideal position would be through reimbursements. It does not sound fair to the employee, but the better approach would be for them to incur the costs and then to claim it as a reimbursement from the employer.
"It will be easier to submit proof (invoices and receipts) that the expense was for business purposes than having received a cash amount paid and having to prove how it was used."
The downside: capital gains tax implications on selling
If you own your home, claiming home office expenses could cost you in extra capital gains tax (CGT) when you sell.
For primary residences, the first R2 million of any capital gain on selling is not taxed. But if you tell Sars that part of your home isn't a residence, but an income-generating office, that part of your home is excluded from the capital-gains tax break.
So if you claim 10% of the floorspace of the home as an office, then 10% of the eventual selling price could be liable for CGT, at a rate of 40%.
However, the CGT calculation also takes into consideration the length of time over which you use your home office.
The calculations can get a bit complex, but you can see some simplified examples of the impact here.
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