COVID-19:  HOME OFFICES AND TAX DEDUCTIONS

COVID-19: HOME OFFICES AND TAX DEDUCTIONS

The media is rife with comments regarding the economic impact of the outbreak of the COVID-19 virus (the so-called “Coronavirus”) in South Africa. Many people have been asked, or is required, to work from home in order to curb the spread of the virus. Is there at least some form of tax break associated with working from home?

Imagine Mr X. Mr X is a salaried employee who usually works at the offices of his employer, during normal office hours. Due to the outbreak of COVID-19, Mr X’s employer has requested or required Mr X to work from home for the time being until the situation is resolved. Could Mr X, in the circumstances, be entitled to tax benefits on account of having to work from home?

The Income Tax Act 58 of 1962 (“the ITA”) allows for a deduction in respect of home office expenditure if certain legislative criteria are met. This is relevant not only for salaried employees who are permitted to work more flexible hours but also,[1] perhaps especially now, for employees who may, or must, work from home due to COVID-19.

The starting point for determining general deductions for purposes of calculating an individual’s taxable income are as per sections 11 and section 23(g) of the ITA (which will not be discussed in detail for purposes hereof). Some of the general deductions are limited by provisions such as those contained in sections 23(b) and 23(m) of the ITA. Home office expenses are one of the expenses limited under section 23(b) and section 23(m).

The deduction for home office expenses may only be claimed by an employee on condition that:

  • the employee spends more than 50% of his/her working hours, working in their home office or more than 50% of the employees’ remuneration consists of commission income;
  • the employee has identified a specific part of their residential home to use as a “home office”, and uses this part regularly and exclusively for work purposes; and
  • if the employee’s office needs to be furnished with specific equipment or tools that are specific to the employee’s trade or profession, then the home office must be so equipped.

Returning to the example of Mr X. If Mr X were an architect, for example, who was asked by his employer to work from home, and as a result Mr X has had to segregate and specifically equip a specific part of his home where he could continue his full-time work for the time being, then, all things being equal, Mr X should be allowed the deduction for home office expenditure.

There is nothing in the requirements of the ITA to suggest that the home office deduction applies only to persons who will work from home indefinitely, for the full period of their employment, or that persons who temporarily works from home due to circumstances such as those faced by South Africa at the moment, should be excluded. As long as the home office is used regularly (and all other requirements are satisfied). There is no specific rule that defines what ‘regularly’ means in this context. SARS’ in its Interpretation Note 28, states that a typical example of the use of a home office that  is not regular in this context is: a home office that is maintained and is only used occasionally, for example, once on a weekend due to the taxpayer maintaining a separate business premises, is not used frequently enough to constitute regular use.”

We believe that, provided that all the requirements are met, employees working from home, even for a limited time due to the outbreak of COVID-19, may be eligible for the home office deduction based on the same rules and requirements that apply in respect of any other employee working from home.

Home office expenses typically include things like:

  • Stationary;
  • Telephone bills;
  • Rent;
  • Rates and taxes;
  • Interest on bond repayments;
  • Cleaning expenses;
  • Wear and tear on assets;
  • Internet expenses;
  • Repairs;

This article is intended to make South Africans aware that there may be a tax benefit associated with working from home and which may come in handy in light of the economic downturn.  It is not intended to be advice. It is highly recommended that you either enlist the expertise of a tax professional to assist you in determining whether you qualify for a deduction of home office expenses and the quantum thereof or, at the very least, that you consult SARS’ Interpretation Note 13 and 28 which discusses this topic in detail.

[1] This does not apply to, for instance, self-employed individuals, who can claim a deduction in respect of work done from home in terms of other rules and provisions, and not under “Other Deductions” on the ITR12 form.