By Darren Britz, Admitted Attorney, and Laurence Mbokwane, Tax Consultant, at Tax Consulting SA
Many South Africans who had to start working from home due to the national coronavirus lockdown imposed on businesses will not yet be able to claim home office expenses.
People who are in a traditional employer-employee relationship earning a salaried income have the expectation and general understanding that the employer is responsible for business expenses. Therefore there is no automatic deduction employees can rely on to claim expenses.
The most important test for claiming home office expenses is that the person must have spent at least 50% of their time in a tax year working from home.
This means that people will have to continue working from home until at least the end of September (six months since lockdown) for them to be able to claim.
Proof required if SARS comes knocking
The employee will be required to prove to the South African Revenue Service (SARS) that they have created a dedicated area in their home where they conduct their trade.
This is not simply a table in the corner of a room. It must resemble an office when SARS comes knocking. Only then will they be able to claim certain home office expenses, such as a portion of the rental or interest on bond payments, electricity costs, and other office expenses such as stationery, airtime and data.
There are currently two situations.
The one is where the employee covers the costs that are incurred to continue working from home and the employer does not reimburse those costs. These employees are seeking some relief through deductions from their taxable income.
The other is that the employer pays an amount upfront for certain expenses. This has the risk of attracting fringe benefits tax. It becomes a fine line whether the funds were used to cover home office expenses or for the employee’s personal benefit.
The best scenario would be for the employee to pay upfront to cover any business expenses and then for the employer to reimburse the employee for those specific amounts.
It will be easier to submit proof (invoices and receipts) that the expense was a business expense than having received a cash amount and having to prove how it was used.
If the employee and employer negotiate an arrangement for the employee to continue working from home indefinitely, it is important to obtain a letter from the employer setting out the new arrangement.
It will also be important to keep detailed records (supporting documentation) of all the expenses that will be claimed.
When you cannot claim
If people have been working from home temporarily and just “made-do” in the short term, for example, using the dining room table as their workspace, they should abandon any idea of claiming a tax deduction.
However, people who earn more than 50% of their income through commission or qualify as independent contractors remain entitled to claim their businesses expenses as they have been doing before the imposition of the lockdown.
If you decided to claim home office expenses from SARS, ensure that you comply with all the requirements and have your documentation and office space ready should SARS request the necessary proof.
This article was based on a press release issued on behalf of Remuneration Consultants.