So are you Working from Home?
I have been receiving a few questions about working from home (WFH) and what is tax deductible and what is not. I would thus like to explain this in the most simplistic terms. If you require assistance I am happy to assist. Please refer to Services that DSquared Solutions offers.
WFH Expenses
So WFH expenses are regulated by a few sections in the Income Tax Act. Mainly 11(a), 23 (m), 23(k), but not limited to.
The requirements of claiming any expenses is firstly ensuring that you have a space dedicated to WFM. This space is basically your office where you would use regularly or exclusively for the purposes of trade and this needs to be specifically equipped. So basically a space set up for the purposes of trade and where the MAGIC HAPPENS.
If your remuneration consists of a salary or similar, the duties are mainly performed in this space of your home and you must perform more than 50% of your duties in your home space or office.
If more than 50% of your remuneration is commission or variable payments based on the work performed, more than 50% of those duties must be performed otherwise than in an office provided by your employer.
There are also CGT implication of WFH and we will discuss this later.
What can be claimed ? Expenses such as rates, water and electricity, stationery, repairs, improvements (this is claimed as wear and tear), interest on a bond, etc. The important thing to bear in mind, is that some expenses to be claim needs to be apportioned. Some such as wear and tear cannot be apportioned and may be deducted in full.
I love examples and pictures so lets use an example
Miss S earns a salary of R300,000, commission of R20,000 and a travel allowance of R30,000. She is obliged to WFM as there is no office. She has a dedicated home space to carry out her duties and exclusively work from this space. This is 20% of her total home space.
| Computer purchased | R25,000 |
| Repair cost | R2,000 |
| Desks and Cabinet | R5,000 |
| Interest on Bond | R50,000 per annum |
| Rates | R12,000 per annum |
| Pension | R15,000 per annum |
| Incurred commission expenses | R10,000 |
This is what Miss S can claim. Since commission is less than 50%, she will not be able to claim all commission related expenses. The following is allowed/disallowed:
| Salary | R300,000 | Allowable |
| Travel allowance | R30,000 | deductible per the travel allowance |
| Computer | Wear and Tear allowance | This wear and tear allowance is deducted in full per year |
| Repairs on computer | R2,000 | not allowed – relates to commission |
| Desk and cabinets | R5,000 | deducted in full and not apportioned. Wear and tear allowance |
| Interest on bond | R50,000 X 20% = R10,000 | Apportioned per 20% (WFH Space) |
| Rates | R12,000 X 20% = R2,400 | Apportioned per 20% (WFH Space) |
| Pension | R15,000 | Allowable, subject to limits |
| Commissions based expenses | R10,000 | Not allowable as commission based |
I hope this makes sense.
Now lets discuss the CGT implications. WFH means that you are producing income and thus is regarded as “tainted” income and is subject to CGT and must be taken into account for CGT purposes.
Miss S purchased the home for R1,000,000 in 2008. She began WFH in 2014. She claimed 20% of the WFH expenses. She also made renovations and that cost R300,000.
In 2020 she sold her home for R3,700,000. Her CGT calculation will be as follows:
| Selling Price | R3,700,000 | R3,700,000 |
| Base Cost | R1,000,000 + R300,000 | R1,300,000 |
| R2,400,000 | R2,400,000 | |
| 6 years WFH @ 20% | less -6/12 X 20% X R2,400,000 | R240,000 |
| R2,160,000 | ||
| Primary residence exclusion | Natural person exclusion | R2,000,000 |
| R160,000 | ||
| Add WFH capital gain | R240,000 | |
| Total Gain | R400,000 | |
| Less Exemption | R40,000 | |
| Amount to be included in taxable income and taxed per PAYE | R340,000 |
I hope this is simple enough to understand. Let me know should you have any questions. Contact me Contact.
Have a lovely week 🙂
