Employees Working from Home: What Tax Deductions Can You Claim?

Working from home is part of our “new normal” and home offices are predicted to remain a permanent feature of many employment relationships in the future.

Both employees and their employers should be familiar with the tax angles, in particular the opportunity to claim tax deductions. When and how do you qualify for deductions? What expenses can you deduct? We discuss the various ins and outs with a simple practical example to illustrate. If you own your own home, read our tail ender note on the possible impact of claiming for a home office on your Capital Gains Tax liability when you sell your house.

“We like to give people the freedom to work where they want, safe in the knowledge that they have the drive and expertise to perform excellently, whether they at their desk or in their kitchen. Yours truly has never worked out of an office, and never will” (Richard Branson)

Thousands of employees have had to work from home since the lockdown began at the end of March. This story has been one of the success stories of Covid-19, as companies have reportedly found that productivity has increased, travel costs are right down and the work is still being done.

Employees stand to reap a range of financial and health benefits from working at home and both they and their employers should know that they may also be able to claim certain home office expenses as tax deductions. Normally only independent contractors and commission-earners would claim these expenses, but SARS has confirmed the relief is available to full-time employees as well – but only in the specific circumstances set out in the Income Tax Act.

How you can claim tax deductions for a home office

The Income Tax Act sets out basic requirements that must be met if this tax relief is to apply:

  • You must practice a “trade” – which can be employment so by being employed this criterion is fulfilled.
  • The home office must be specifically equipped for you to do your job – usually, this would mean a computer, broadband, printer, desk and chair etc.
  • The home office is be regularly and exclusively used by you to do your job – once you have finished a day’s work, for example, the area cannot be used as a family room.
  • More than 50% of your work needs to be performed in the home office – in other words you must work from home for at least six months of the tax year.

Tax deductions allowed

If the above criteria have been met, then you may deduct:

  1. Rental or bond interest on your home and home repairs,
  • Wear and tear on office equipment (SARS has differing depreciation rates on computer equipment and office furniture).

You will also incur numerous costs in running your home office such as cell phone, bandwidth, equipment repairs, stationery and cleaning. As these are not specified in the Income Tax Act, it is better that you be reimbursed by your employer for these expenses.

In terms of points 1 and 2, as a taxpayer you need to make an apportionment of those costs when claiming them in the income tax return. Typically, this is done on a floor space i.e. square metre basis of the home office in relation to the total area of the home – see the example below.

As noted above, one of the criteria is that you can only claim a home office allowance if more than 50% of your work (at least six months of the tax year) is done in your home office. This is not a problem during lockdown (as the home office is being used 100% of the time) but should you want to continue claiming for a home office after the lockdown, then you will need to spend more than 50% of your working hours in your home office.

This is all best illustrated with an example:

Example: Home Office
Notes Calculation of deductions claimed   Rand  
  Elizabeth needs to work from home and purchases…      
  A desk and chair   10 000  
  Desktop computer and printer 12 000  
  = Total equipment and furniture   22 000  
  Elizabeth’s monthly rates, water, refuse and electricity cost 4 000  
  Elizabeth’s monthly rental of her home   20 000  
1 Her monthly data and cell phone cost 1 200  
1 Stationery    120  
         
  Her Annual tax return      
2 Wear and tear computer equipment 3 year write off 4 000  
2 Furniture 10 year write off 1 000  
  =Total wear and tear deduction C22   5 000  
3 Water, rates, refuse and electricity   6 000  
3 Rental claim   30 000  
  =Total deductions claimed   41 000  
         
  NOTES      
1 Company reimburses Elizabeth for these costs as they are not allowable per the Income Tax Act      
2 Annual depreciation computer = 12 000/3 = 4 000      
2 Annual depreciation furniture = 10 000/10 = 1 000      
3 Size of Elizabeth’s house 200 square metres  
  Size of her home office 25 square metres  
  Claim is (25/200)  12,5%   of allowable costs 
  Annual municipal charge 48 000  4 000 monthly 
  Claim is 48 000 x 12.5%   6 000
  Rental claim = annual rental x 12.5% 30 000   240 000 x 12.5%
         

These tax deductions effectively compensate you for your costs of equipping a home office. Both employers and employees benefit.

As an employee make sure you get a letter from your employer to confirm that you are working from home, retain invoices and statements of these expenses, and keep a running spreadsheet of days worked at home for the tax year.

As an employer speak to your accountant when setting this up. SARS’ requirements are stringent and you don’t want your staff to be denied the deduction.

Beware the CGT impact!

Claiming for a home office as above may well have an adverse impact on the amount of Capital Gains Tax you have to pay when you eventually sell your home. This can become a complicated issue and calculation so it is essential to get professional advice on this aspect!