Working from home: what you can deduct for tax purposes

Ashley Mhona and Willem Oberholzer say the part of your home designated as your office space must be used exclusively for work purposes for you to deduct a portion of the expenses relating to it.

THE Covid-19 pandemic left many people immobile and working from home, and although life has returned to normal in many respects, work practices have changed permanently – working from home, at least some of the time, is now widely accepted and practised.

Can the expenses incurred as a result of working from home – electricity, rent or mortgage bond repayments – be claimed as a tax deduction against your income? The answer is not a simple yes or no.

Section 23(b) of the Income Tax Act prohibits the deduction of expenditure related to premises not used for business, such as a house or domestic premises, and section 23(m) prohibits the deduction of expenditure related to employment from which you derive remuneration.

However, there are viable avenues to reduce your tax liability and accommodate home office expenses. These avenues include:

TAX PLANNING

Sections 23(b) and 23(m) restrict the deduction of home office expenses. However, there are exceptional circumstances listed in section 23(b). Employees may deduct a portion of the expenses relating to their home office in the following circumstances:

● The home office must be specifically equipped for the purposes of your trade. Therefore, your home office must be set up and contain equipment that proves that the space is essential to your occupation.

● The home office must be used mainly for trade purposes. This means that it must be used for more than six months of the tax year. (“Mainly” means the home office must have been used for more than 51% of the tax year or at least 187 days).

● The home office must be exclusively used for trade purposes. This means the part of the home designated as your office space may not be used for domestic purposes – for example, you cannot declare that having a desk in your main bedroom makes it your home office.

● The onus is on you to prove the above.

REIMBURSEMENTS

If your employer reimburses you for expenses incurred in working from home, the reimbursements have the benefit of not being taxable, as they do not constitute remuneration.

However, you must bear the office expense first, and keep all invoices and receipts to be able to claim the amount from your employer, and the expense must be concomitant on your rendering services to your employer.

ADVANCES FROM EMPLOYERS

An advance entails receiving an amount from your employer to be used for your home office expenses. Advances have the same benefits as reimbursements.

However, the expense must also be affiliated to the rendering of your services to your employer, and all invoices and receipts must be kept.

If the advance is excessive and not fully utilised by you, the employer can claim the excess from you. If the advance is deficient, you can claim a reimbursement from the employer.

NO-VALUE FRINGE BENEFITS

Any communication service provided to an employee will not be taxable if the service is used mainly (more than 51%) for the purposes of the employer’s business.

CASUAL LOANS FROM YOUR EMPLOYER

Casual loans of less than R3 000 granted by employers to employees are not taxable if granted as stipulated in the tax regulations.

CONCLUSION

Employers have feasible relief at their disposal to help employees working from home. However, it is imperative to note that, for any method elected, all proof of transactions must be kept.

Ashley Mhona is a tax consultant at Probity Advisory and Willem Oberholzer CA(SA), MCom (Tax) is the chief executive of Probity Advisory.