Claiming Home Office Expenses
Background
South African Revenue Services has over the years allowed the deduction of Home Office expenses in the determination of taxable income. Due to Covid-19, the work environment was forced to change, leading to many employees working from home, either on a full time or part time basis. South Africans could qualify to claim Home Office expense deduction when they submit their 2025 tax return, provided they meet the requirements as set out in the Income Tax Act.
This applies if taxpayers earn mainly commission, are independent contractors, freelancers or even employed individuals.
However, claiming expenses incurred in maintaining a home office have been always been a controversial Tax related issue. The legislation relating to home office expenditure that a taxpayer may claim in terms of section 23(b) of the Income Tax Act has been periodically amended since 1990.
Dependent on the facts of a particular employee-employer relationship, an employee who has incurred business expenditure may be able to claim a reimbursement from their employer to offset a financial hardship experienced as a result of incurring expenditure for work purposes.
Do you Qualify?
With many South Africans working from home permanently of temporarily, SARS have aligned the tax deductions in order for taxpayers to claim for “home office” expenses.
SARS tax laws currently allow the following taxpayers to claim these expenses:
- individuals who are self-employed and run their own business from home as a ‘sole-proprietor’/independent contractor can claim certain home office-related expenses (in proportion to the area used for their dedicated office); or
- individuals who earn 50% or more of their income as variable remuneration (i.e. commissions/bonuses) and spend 50% of their working hours away from their employer’s offices
- Individuals who earn remuneration of less than 50% variable remuneration, who are required to spend 50% or more of their time away from their employer's office to perform their duties, will be allowed to claim certain expenses incurred in relation to his/her home office.
Requirements to qualify as a Home Office
The 3 crucial requirements for SARS to allow the “Home office” expense claim are:
- The employee’s duties are mainly performed in his/her own home office, and the employee must regularly and exclusively use the office for business purposes. The office space can not be used for private purposes.
- The office must be a dedicated space/room used mainly and solely for this purpose to be regarded as a “home office” (a coffee table in your lounge will therefore not be regarded as a ”home office” for tax purposes); and
- The office is specifically equipped for these purposes, e.g. a home study, with a desk, computer, etc.
Other Requirements:
SARS are also asking taxpayers to justify their home office claims by requiring proof of the following:
- Schedule of the actual days spent working at home during the tax year vs dates where the employee worked at their employer’s office to justify the “mainly” requirement (more than 50% of the time);
- 360-degree pictures of the home office;
- Plans of the house and specific area of the home office (with details of square meterage of each);
- SARS will also request mandatory supporting documents (invoices, statements, proof of such payment).
Calculating the claim for Home Office Expenses
Expense of a capital nature are not allowed i.e. repayments on bond capital.
The expenses must be actually incurred and in the tax year in question e.g. in 2025 tax year is from 2024-03-01 to 2025-02-28 and all expense incurred must relate to the home office.
Below are example of expenses that can be claimed;
- Rental of the premises;
- Repairs;
- Rates and Taxes;
- Cleaning;
- Other expenses in connection with the premises;
- Phones (only commission earners can claim for phones);
- Stationery (only commission earners can claim for stationery);
- Wear-and-Tear/Depreciation on office equipment.
Effective from 1 March 2022, SARS will no longer accept the claiming of bond interest as part of “home office” expenses.
Example of the Calculation of a Home Office Claim:
You meet all the requirements to submit a Home Office Claim [see requirements above] and you incurred the following expenses relating the the home in which the Home Office is located:
Expenses Incurred | Amount [R] |
Interest on Bond # | 32,000 |
Cost of Repairs | 8,000 |
Wear and Tear | 2,500 |
Rates & Taxes | 6,500 |
Electricity | 8,000 |
Domestic Worker | 5,000 |
Total Expenses | 62,000 |
Less: Interest on Bond [not allowed] # | 32,000 |
Allowable Home Expenses | 30,000 |
# Notes |
|
Effective from 1 March 2022, SARS will no longer accept the claiming of bond interest as part of “home office” expenses. |
|
Calculation of Apportionment | Amount [R] |
Floor Space of Office [sqm] | 10 |
Floor Space of House [sqm] | 100 |
10 sqm / 100 sqm = | 10% |
The portion of the Home used as the home office is therefore 10% |
|
Calculation of Deduction | Rands |
Total Allowable Expenses | 32,000 |
Less: Wear & Tear | 2,500 |
Amount to Apportion | 29,500 |
10 % x R 29,500 = R 2,950 | 2,950 |
Add Back: Wear & Tear | 2,500 |
Allowable Claim | 5,450 |
Impact of the Claim for Home Office Expenses on your Taxable Income:
Assuming the you have earned R 550,000 in Taxable income for the tax year, you taxable income will now be:
Calculation of Taxable Income | Rands |
Taxable Income Earned for the year | 550,000 |
Less: Allowable Claim | 5,450 |
Taxable Income for the year | 544,550 |
Lower taxable income means you will pay less tax. Before you decide to claim home office expenses be sure that all the requirement of a home office are met. Have all relevant supporting document to substantiate the claim .
Home Office and Capital Gains Tax [CGT]
It is also important to note that should you be claiming a tax deduction for home office expenses, this will impact any future Capital Gains on the sale of the property. The portion used as a home office will be excluded from the primary residence exemption upon sale.
- The primary residence for an individual is the first R 2 million of any capital gain or loss arising on sale or the first R 2 million of proceeds from the disposal.
- When a part of your home is used a home office and a deduction is claimed for, this part of your home is considered “tainted” for capital gains tax purposes.
- Upon the sale home the overall capital gain/loss will need to be apportioned between its tainted (trade) and untainted (private) elements.
- The primary residence exclusion can only be set-off against the untainted (private) portion of the capital gain/loss and the tainted (trade) portion of the capital gain must be fully brought to account.
The tax impact that home office has on the calculation of capital gains tax, upon sale of a property in the future, could be considerable.
The following example illustrates how the primary residence exclusion works and how a home office could affect the tax due on disposal.
You purchased a home in February 2010 for R1,200,000. In February 2018, you carried out renovations to add on an extra bedroom and spent R300,000. You live in this home until February 2022 when you sell the residence for R3,500,000. Assume your taxable income for 2022 will be R500,000.
The Capital Gains calculation is as follows | Rands |
Proceeds from the Sale of the Residence: | 3,500,000 |
Base Cost: [R 1,200,000 + R 300,000] | 1,500,000 |
Capital Gain [Proceeds less Base Cost] | 2,000,00 |
Calculating the Taxable Caiptal Gain | Rands |
Capital Gain: | 2,000,000 |
Less: Primary Residence Exclusion | 2,000,000 |
Taxable Capital Gain | 0 |
No annual exclusion of R40,000 because the Capital Gain is nil so cannot be reduced further.
Therefore, the sale of your home has had no impact on his capital gains tax liability. This is because the capital gain (R2m) is equal to the primary residence exclusion (R2m) which reduces it to nil.
Assuming the same example as above and that all details remain the same, but instead of an extra room, You carried out renovations for R300,000 to add on an office from where you works until you sell the home in February 2022.
The office space made up approximately 10% of your total house space. You therefore claimed 10% of the running costs relating to the home as a tax deduction against your business income.
In this situation, the capital gain must be apportioned between primary residence use and trade use.
This apportionment must take into account two factors being:
- The length of time that the home office was used as a portion of the entire period of ownership (4 years out of 12 years in our example), and
- The size of the home office compared to the size of the entire property (10% in our example)
Assuming all other details are exactly the same as in the first example, the Capital Gains Calculation is as follows:
The Capital Gains Tax calculation is as follows:
Calculating the Taxable Capital Gain:
As can be seen, the Primary Residence Exclusion above has been reduced by R 66,666 from R 2,000,000 to R 1,933,334 and was calculated as follows:
R 2,000,000 x 4/12 [4 years out of 12] * 10% [for Home Office Purposes] = R 66,666.
Due to the primary residence exclusion having been reduced to R1,933,334, the Capital Gain on the sale of the residence is now calculated as follows:
Calculating the Capital Tax Gain | Rands |
Capital Gain: | 2,000,000 |
Less: Primary Residence Exclusion | 1,933,334 |
Total Capital Gain | 66,666 |
Less: Annual Exclusion | 40,000 |
Taxable Capital Gain | 26,666 |
The inclusion rate for capital gains is 40% for individuals. This means that 40% of the gain (i.e. R26,666 X 40% = R10,666) is added to your taxable income and will be taxed at your marginal rate of tax.
If we assume that your marginal tax rate is 36%, then approximately R3,840 capital gains tax will be payable (i.e. R10,666 X 36%). If you had not used part of the residence as a home office, then capital gains tax on the disposal of the property would have been nil as illustrated in the first part of the example.
We're Here to Help
At Dynamic Business Solutions, we have many years’ experience dealing with SARS and are registered Tax Practitioners with the entity. If you have a dedicated workspace at home and have any questions, or need help, contact us today.
