Sars warns residents to weigh up claims for home office expenses before filing returns

The South African Revenue Service (Sars) advises individual taxpayers to carefully consider any claim for home office expenses before filing their income tax returns.

Due to the impact of Covid-19, many people have spent more time than usual working from home. When considering whether to claim for any related expenses, Sars said that it is important to take note of the following:

Firstly, there have been no changes to the legislation regarding a ‘home office’, meaning that the legal requirements stay the same as before the Covid-19 pandemic.
This means the following:

• An appropriately equipped office 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 over 50% of the employee’s duties or, if the employee earns over 50% of their remuneration from commission or other variable expenses based on workplace performance, over 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
• Home office expenses must be claimed against source code 4028 in the income tax return.

Secondly, where a home office is on taxpayer-owned property, taxpayers should take note that defining part of a primary residence as a home office will likely have an adverse impact on future capital gains determination.

According to a statement from Sars, “The home office area will, on pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence.”

Sars advises residents to carefully consider whether the savings made as a result of working from home (for example transport, wear and tear on vehicles etc.) outweigh the loss of part of the capital gains exclusion.

The entity noted that home office expenses may be subject to further verification or audit by Sars. There is a higher likelihood that taxpayers claiming these expenses for the first time will be selected for an 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,” concluded Kieswetter.