HOME OFFICE EXPENSE DEDUCTIONS AND THE COVID-19 LOCKDOWN– HAS ANYTHING CHANGED?

While taxpayers in South Africa anguish over their beloved booze and cigarettes being sanctioned, at least they feel some respite in the form of a future tax deduction for home office costs having to work from home during the Covid-19 lockdown period.  

Introduction 

Claiming home office deductions from employment income has always been controversial and has resulted in many disputes with SARS in the past.

Legislation dealing with the deductibility of such expenditure has been amended many times, each time introducing another hurdle to claiming such deductions. The number of hurdles are now so prohibitive that it is only in exceptional circumstances where a person would be entitled to a deduction for home office expenditure.

This article deals with the hurdles and how it impacts on employees working from home during the Covid-19 lockdown period. The article does not deal with employees earning primarily commission and incentive based income.

The first hurdle

The taxpayer must actually have incurred the expenditure. This is normally an easy hurdle to overcome. 

The second hurdle

The area used for business purposes must be specifically equipped for the nature of the trade carried on by the taxpayer. 

This means that the area used for trade must be fitted with the instruments, tools and equipment required to conduct the trade.

This probably does not mean that you have to have a desktop computer in your home office, but that the area must be equipped to use your laptop. 

If your laptop is all you have and you use it as and where you are in the house, this hurdle will see the home office expenditure disallowed. 

The third hurdle

The taxpayer must regularly and exclusively use the home office for its trade. This is a tough one! 

If a taxpayer only uses his or her home office over the weekend or ad hoc the taxpayer would not fulfil this requirement of regularly using the home office for trade purposes. 

Furthermore, if the home office is used for anything other than the trade, the taxpayer would be disqualified from claiming any deduction. 

The fourth hurdle

The last hurdle requires that the taxpayer must perform his or her duties mainly in the part of the private residence used for trade. Mainly in this context means more than 50% of the person’s work hours.

If the person spends most of his or her time at clients and less than fifty percent in the home office, the deduction would be denied. 

Has Covid-19 changed anything?

As a result of COVID-19 many more people are working from home. The tax rules have however not changed. In practice most employees would still not qualify to claim home office expenditure due to the hurdles that must be overcome. Most employees would not have the dedicated space and capacity required.

Having said the above though, COVID-19 has brought along with it a new way of looking at working from home. In future working from home may become the norm. The impact of this shift must be carefully considered to ensure that where applicable, future arrangements between employers and employees best utilise the potential deductions available in respect of home office expenses.

Conclusion

For now, it appears to be business as usual. The future may however look significantly different once the post COVID-19 workplace is defined.