How to setup your home office for maximum tax benefit

Due to the pandemic, many more employees and entrepreneurs are working from home and setting up home offices. As this setup has become more common and seemingly more permanent, this creates a potential opportunity for a home office tax benefit.

As an employee of your company, you may be entitled to claim a portion of your domestic expenses as a home office deduction. However, SARS has specific rules regarding this deduction and you may need to provide receipts and proof of payment for all amounts you are trying to claim.

Requirements to claim a home office

An employee may only obtain a tax deduction for home office expenses if:

• The home office is regularly and exclusively used for your work. This means you must usually work in that office and you are not allowed to do anything else there.
• The home office is specifically equipped and set up to be used for your work. This means that the office must have all the equipment needed for you to work there at all times.

Here is a questionnaire SARS has created to determine if you can qualify for a home office deduction:

https://www.sars.gov.za/types-of-tax/personal-income-tax/tax-season/home-office-expenses-questionnaire/

Allowable expenses

These are two types of expenses involved in your home office. This first is expenses directly related to the home office, for example:

• Office equipment
• Furniture and fittings
• Phone costs
• Stationery
• Wear and tear

These can be claimed in your home office expense calculation.

The second type of expenses relate to those domestic costs closely related to the house as a whole, for example:

• Rent
• Interest on mortgage
• Repairs and maintenance
• Rates and taxes
• Cleaning
• Internet
• Electricity

These can be allocated as follows:

A/B x total costs, where:

• A = the area of the home office
• B = the total area of the residence
• Total costs = these home costs

So if your office is 10m2 and your house is 100m2 and your rent is R2000, you can claim R200 (10/100 x 2000) as a home office expense.

In this scenario, only the employee will get a tax deduction to be used against their salary. The company will not receive a deduction for this home office.

However, if you rent out the home office to your business or get the company to give the employee home office allowance equal to the deduction received by your home office expense, you will effectively move the deduction to the business.

The business will get a deduction for the cost, either as a salary expense or a rental expense. The employee will have the additional income but as long as it does not exceed the home office expense calculated, there will be no taxable profit for the employee.