Is your home office tax deductible?
Working from home certainly has its perks, especially if your home office enables you to reclaim your hard-earned money back from the taxman.
However, before you assume that you are entitled to remuneration, you first need to make sure that your home office meets the specific requirements that would qualify it for tax deduction as prescribed by the Income Tax Act.
He says typical home office expenses include rent on the premises, insurance, interest on the mortgage bond, rates and taxes, repair costs to the premises, electricity, water, security and cleaning costs.
Three simple requirements, considered as 'general rules', need to be fulfilled before establishing whether home office expenses are tax-deductible.
The home office needs to be a room within a home that is solely dedicated to the purposes of the business. It should be equipped with necessary items specific to its trade, and it should be used frequently and exclusively for its intended purpose.
With the above being said, the South African Revenue Services (SARS) does not expect an entire room to be dedicated exclusively to the business. Instead a portion of a room or a designated area can still be considered a home office and will enable one to claim a tax-deduction - but this area would need to comply with all the general rules as previously stated.
Gray says there are two types of deductible home office expenses and it is very important to distinguish between them. "Expenses that directly relate to the work space are deductible in full, while those thought of as indirect expenses can be partially deducted as are related to the cost of the property where the office is based.”"
Direct costs attributed to the office would include repairs to the office, stationary or telephone costs relating to the business, and can be claimed in full. However, expenses relating to the property, as a whole, are more complicated and would depend on the percentage of the home that is used for the business.
To calculate these expenses the floor area of the home office would need to be divided by the total floor area of the home in order to determine the accurate expenditure that has incurred within the office space. Examples of these types of indirect expenses include real estate property taxes, rent, mortgage interest, utilities and homeowners or renters insurance.
The law pertaining to employees working from a home office stipulates that their income from employment needs to be more than 50% derived from commission and that they need to work for the majority of the time from that home office in order for them to receive remuneration for their home office expenses.
Gray says when working from home, your office may come under intense scrutiny from SARS. "Therefore it is important this office is only used for business purposes and not for personal affairs, as well as that an accurate record of all expenses is thoroughly documented."
As an employee working from home, ensure that the employment contract specifies that you are able to use a room or part of a room in the home as an office, he says.