Deducting Home Office Expenses

Work culture has undergone significant transformation, with many employees working from home, especially after the COVID pandemic. There has also been a rise in entrepreneurship opportunities and freelancing. With that being said, it is important to know how having a home office influences your taxes.

Understanding the tax regulations regarding home office expenses is important, as SARS may permit you to deduct these costs in the “Other Deductions” section of the ITR12. However, it's crucial to recognize that this deduction is only permissible under specific conditions. Employees who work from home needs to work through a set of conditions to see if they qualify for a deduction.

Sole proprietors and freelancers who work from home can automatically deduct all their home office expenses.  They can simply complete the relevant portion of home office expenses within the “Local Business, Trade and Professional Income” section of their ITR12. They are also able to claim for their internet expenses. Unfortunately SARS no longer see this as a tax deductible expense for salaried employees.

Here’s what you need to qualify for deducting home office expenses:

1. A letter from the employer is required to confirm that the taxpayer is permitted to work from home.
2. The taxpayer is required to spend more than half of their total working hours at their home office.
3. Taxpayers must designate a specific area (entire room) in their home that is used solely for work purposes. SARS enforces this requirement stringently and requests evidence, including photographs (some depicting the workspace and others showing that the room is used exclusively for work) and floor plans.
4. The office should be tailored specifically for the taxpayer's profession; it must have the necessary tools, instruments, and equipment essential for the taxpayer to carry out their work effectively.

Expenses that can be deducted

The taxpayer needs to determine if he/she is a commission earner (more than 50% of their total compensation comes from commission or another variable form that is tied to their work performance) or a regular salaried employee whose variable payments or commissions account for less than 50% of their overall compensation.

Commission earners can deduct expenses such as rent, repairs to the property, rates and taxes, cleaning, wear and tear, and other costs associated with your home, along with any business-related commission expenses, such as stationery, cellphone accounts, internet etc.

Salaried employees can deduct expenses related solely to their home, including rent, repairs to the premises, rates and taxes, cleaning, wear and tear, and other relevant costs.

SARS has announced in their most recent Interpretation Note that, starting from the 2023 tax year, interest on bond expenses will no longer be permitted as a home office cost. However, taxpayers may still claim their interest on bond expenses for the year 2022 and earlier.

Calculating your home office deduction

To determine the deductible portion of home office expenses, first calculate the total square meterage of the home office in relation to the entire property. Then, convert this figure into a percentage. Finally, apply this percentage to the home office expenses to find the deductible amount.