The process of deduction for those working from home

● Claiming home-office expenses as a deduction has been controversial since the 1980s. Not getting it right on your tax return can drag out your assessment cycle.

The Income Tax Act provides general deduction rules that allow you to claim certain expenses as a tax deduction. These expenses must not be incurred for personal or domestic purposes.

The expenses you may claim also depend on the type of income you earn. If you are a salaried employee, the deductions you may claim are limited by legislation. For example, the cost you incur to repair a laptop will not be allowed as a deduction against your salary. If more than 50% of your income is earned from commission or variable pay, you may be entitled to claim the cost of the repairs in terms of the general deduction rules.

What is a home-office deduction, and who can claim?

A home-office deduction includes expenses you incur in running a home office that is specifically used to conduct your trade and to earn income. The Income Tax Act imposes certain restrictions in claiming a home-office deduction. The home office must be used regularly and exclusively by you to perform your duties.

If a part of the home office is used for private use, such as a play area or study room, this will not be considered exclusive business use. A portion of the property must be allocated to the home office and it must also be specifically equipped with appropriate furniture and equipment.

As a salaried employee, a home-office deduction may be claimed if:

● Your employer allows you to work from a home office;

● More than 50% of your duties are performed from such office; and

● That office is used exclusively to perform those duties.

If, as an employee, you are required to perform your duties at the office provided by your employer, you will not qualify for the deduction.

Facts and circumstances, together with the nature of your duties, must require you to work from home on a regular basis. This arrangement between you and your employer should be documented. If you choose to work from home without permission from your employer who provides you with an office where your duties are required to be performed, you cannot claim a deduction.

Sales representatives who work at client premises will generally not be required to maintain a home office. The facts and circumstances of each case will need to be considered.

If your employer does not provide an office due to your employer not having a business premises and you are required to use a home office to perform administrative functions of your job, you may be entitled to a deduction.

If more than 50% of your income is from commission, a home-office deduction may be claimed, subject to the same conditions as for other employees.

What expenses can be claimed?

If you are entitled to claim home-office expenses, the costs associated with the rent of the premises, interest on bond, repairs, rates and taxes, water and electricity, cleaning and security may be claimed.

If you make improvements to the home office, such as replacing worn-out carpets with laminated flooring, this expense may be regarded as being of a capital nature. You are therefore cautioned to take appropriate advice before claiming such expenses as a deduction.

Other typical office expenses include phones, stationery, and wear and tear.

How is the quantum of the expense calculated?

To quantify the allowable home-office expense deduction, the total area (in square metres) of your home office in relation to the total area of your house must be determined.

If the total area of your home is 200m² and the total area of your home office is 20m², the percentage area of your home office in relation to the total area of your house is 10%.

Only 10% of the allowable expenses, such as interest on the bond, will therefore be allowed as a deduction.

Mohan is a tax practitioner and a member of the South African Institute of Tax Practitioners