Taxpayers have to be careful when claiming home office expenses from tax, because the law has not changed.
The South African Revenue Service (Sars) warns that taxpayers must still correctly and truthfully complete their returns or they may be caught out.
Sars has received 1,565 tax returns with home office expenses claimed so far, of which 1,306 were stopped for verification audits, with the risk identification rate at 50% in this area, Sars commissioner Edward Kieswetter said on Thursday when he launched the new tax filing season for trusts and individuals.
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Due to the impact of Covid-19, more people than usual have spent time working from home. According to Sars, taxpayers who want to claim for their home offices must remember there have been no changes to the legislation in relation to a “home office”. The legal requirements remain the same as before the Covid-19 pandemic, which means:
- An office, appropriately equipped, set up at your primary residence.
- The office must have been used regularly and exclusively for work.
- The office must have been used for more than 50% of your duties or, if you earn more than 50% of your salary from commission or other variable payments based on work performance, more than 50% of your duties must have been performed away from your employer’s office.
- Any home office expenses must be linked to employment use and must be verifiable.
- Home office expenses must be claimed against source code 4028 in the income tax return.
If you own the property, you have to remember that formally defining part of your primary residence as a home office will most likely have an adverse impact on a future capital gains determination.
Your home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million when you sell it. Therefore you have to carefully consider this before claiming for home office expenses.
You might also find that working from home has meant savings on expenses you would otherwise have incurred, such as transport and wear and tear on your car. Together with the loss of part of the capital gains exclusion, these savings may outweigh the benefit of claiming for home office expenses.
While all claims for home office expenses may be subject to further verification or audit by Sars, it is important to note there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit.
“The need for many employees to work remotely has been necessitated by the Covid-19 pandemic in an unprecedented manner. We understand that many employers, and employees alike, are grappling with establishing a new normal.
“We simply ask taxpayers to consider carefully the longer term implication of defining an area in their primary residence as a home office for tax purposes. It may be more prudent to wait and establish a more sustainable rhythm before making the decision,” Kieswetter said.