Have you been working from home lately?

The COVID 19 pandemic not only affected how we socialize and go about our daily tasks, but it has also had a major impact on workspaces. When the South African Government announced the national lockdown, all businesses that were not viewed as essential services instructed staff that they would now be working from home. And so, the immensely popular home/work office trend boomed. Further to a trend, safety and financial reasons have kept many individuals working from home. Being flexible with working either full or part-time from home is beneficial for many reasons, one of them being that you can claim on tax returns.

According to Elani van der Westhuizen, a senior tax technical at TaxTim, you could claim for your home office if you started working from home at the end of March 2020 and continued to work from home for 6 months thereafter, which will bring you to the end of February 2021. (TaxTim, 2021) You will however need to meet the following minimum requirements:

1. A letter from your employer stating that you may work from home as well as confirmation of what percentage of your time will be spent working from home.
2. You have a dedicated workspace that will be exclusively used for work only.
3. Your office is specifically equipped with all the tools that you require to complete your work.
4. More than half of all your working hours need to be done from home.

If you meet the above requirements you will qualify for a tax deduction on the following: Repairs to the premises, rates and taxes, water and electricity, cleaning, data usage, wear and tear of any office equipment and you can claim for rent or interest on your bond. Tax practitioners or TaxTim's calculator will be able to assist you in calculating the deduction you qualify for.

I know many of you might be asking - Are you able to claim if you work from home using a residential allocated area such as a dining room table. Unfortunately, you will not be able to claim because that area is not specifically allocated and dedicated purely for work purposes. The workspace that you have claimed to be using during the day for work is also the space where you and your family sit down for dinner. To claim your workspace needs to be an area that is solely equipped and used for work purposes.

While being able to claim is a massive saving and benefit that one has when working from home, there are also disadvantages. The biggest disadvantage or penalty would be Capital Gains Tax when you sell your house.

The rule around Capital Gains tax is quite simple. When you sell your house, the house (capital gain) becomes taxable. You do however get primary residence relief, which is a form of tax relief that you qualify for should the residence be your main residence, or a dependant needs to reside in the said residence. Please see the equation below.

Example:

Home Selling Price = R3 Million

Home Original Cost = R1 Million

Capital Gain = R2 Million

Primary Resident Exclusion Amount = R2 Million

Total claimed over the years for home office R1.3 million.

Total capital gains to pay: 
R2 million + R1. 3 million = R3.3 million - R2 million = R1.3 million 
taxable VERSUS a taxable amount of zero if you never claim the home office deductions in previous years.

The above example is based on a home office that was originally part of your residence. Your time for working at home has however increased and now you decided to renovate and add an office. How does this change the calculation? Well, the Tax act now requires the capital gain to be allocated between your primary residence use and business use. The allocation process must now take 2 factors into consideration, namely the size of your home office compared to the total size of your property and secondly the total amount of time that was spent in the office over the period you have owned the office. This clearly complicates the calculation now.

Considering when to claim and when not to claim can be very confusing and many might not understand the necessary procedures correctly. It is especially important to remember that everyone's tax deductions and what they qualify for are different. There is clearly no cookie-cutter answer, and it is therefore of the utmost importance to contact a professional tax consultant to ensure that you receive the right guidance and advice.