Work from home claims need to be carefully considered, taxpayers warned

The South African Revenue Service (SARS) has urged taxpayers to carefully consider working from home expenses before submitting claims to the revenue collector.

SARS recently published an update on its website in relation to home office expenses.

In a statement on Thursday, the revenue collector provided additional clarity for individual taxpayers who may be considering submitting claims for home office expenses in their income tax returns that can now be filed for the 2021 tax year.

This comes as many taxpayers started working from home as the country navigated the effects of the COVID-19 pandemic.

Among others, SARS said taxpayers should note that there had been no changes to the legislation in relation to a “home office”.

“The legal requirements remain the same as before the COVID-19 pandemic. In brief this means an office, appropriately equipped, must have been set up at the place of primary residence; the office must have been used regularly and exclusively for work purposes.

“The office must have been used for more than 50% of the employee’s duties or, if the employee earns more than 50% of their remuneration from commission or other variable payments based on work performance, more than 50% of the employee’s duties must have been performed away from the employer’s office.”

Any home office expenses must be linked to employment use and must be verifiable. Additionally, home office expenses must be claimed against source code 4028 in the income tax return

The revenue collector said where the home office is in taxpayer owned property, taxpayers should note that formally defining part of a primary residence as a home office will most likely have an adverse impact on a future capital gains determination.

“The home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence. Careful consideration should, therefore, be given before a claim for home office expenses is made.

“Taxpayers may also find that working from home led to savings on expenses they would otherwise have incurred, like transport, wear and tear on vehicles and so forth. Taken together with the loss of part of the capital gains exclusion, these savings may outweigh the benefit of a claim for home office expenses.

SARS said while all claims for home office expenses may be subject to further verification or audit by SARS, it is important to note that there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit.

SARS Commissioner Edward Kieswetter said: 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 would 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”.

This statement does not replace the actual text of the provision in the Income Tax Act, 1962, nor the guidance on the SARS website. Taxpayers who require further assistance may visit www.sars.gov.za.