In an ever-changing economy, more business owners and home-based workers are electing to work from home. Faster and more affordable internet is finally here, so working from home has never been easier. South Africa is catching up with the rest of the world. Many South African companies are taking advantage of the benefits and flexibility of working from home.
It sounds wonderful: being able to put the kettle on, make a coffee and head straight into a dedicated area in your home that you have set aside as your work space. There’s no traffic or struggling to park, no office distractions and no office dress code. However, working from home might not always be a plain sailing affair. Working from home does necessitate responsible business habits and administration, especially when it comes to the submission of accurate South African Receiver of Revenue Service (SARS) claims relating to your small home office (SOHO).
Expense-claims for SOHO not always legitimate
There are several legitimate expenses that may be offset when working from home. SARS makes allowance for this. A person might think of these expenses as perks, but in reality they are mostly overheads. However, when it comes to taxes, some people who choose to work from home abuse this privilege. They try to squeeze as much rebate money out of SARS as possible. Some SOHO expense-claims often include domestic workers, gardeners and security. For these reasons the primary question remains: are there expense-claims allowable?
SARS recognises legitimate expenses for running a small office space (SOHO) from home. SARS has published an interpretation note for SOHO workers (Interpretation note 28, as it relates to Income Tax Act No. 58 of 1962) that outlines what can (and cannot) be claimed. SARS is cut-and-dried on these rules. There is minimal opportunity to exploit these rules by claimants who might wish to ‘bend the rules’ when submitting a SOHO-related expense claim. Interpretation Note 28 (click link to download) makes for valuable reading, so why not take some time to download and read this document.
The SOHO (Small Office Home Office) as defined by SARS
SARS provides a very clear definition of a home office. The key word to note in the definition is “Specific” or “Specifically” in terms of the demarcation of the space or room used as an office.
When defining or setting out your work from home office space for tax purposes, there a number of important elements to consider. These include:
- The area must be a specially allocated. The office must be set aside so that one can work from it. Just using a kitchen table or a couch is not enough. Ideally the space should be closed off from the rest of the house—or at least, in smaller properties—be clearly identifiable as a place in which one can work.
- The specifically allocated space should be equipped for work purposes. The space needs the tools of your trade. These may include a computer if you use one, or a drawing board if you are an architect or designer.
- The space must be used for regular work activity. Just using an office on sporadic occasions (in the evenings for example) in order to catch up a little work done elsewhere is not considered regular.
With these elements considered and understood you will have met the terms and considerations SARS sets down in order to be able to claim for your SOHO.
What can I actually claim?
The claims you make must be related to the running your SOHO. The claims must also be reasonable. There are many things that could be claimed, of which some items are rather obvious such as stationary, office equipment (including wear and tear) and fixed-line and mobile phones. However a claimant is also entitled to claim interest on their bond, maintenance and repairs, and a percentage of water, electricity and other taxes. Interpretation Note 28 (click link to download) from SARS gives a clear and logical breakdown of what can (and cannot) be claimed—including how much in monetary terms may be claimed too.
How do I calculate my claim?
The calculation for the amount you can claim is rather easy to do. Simply calculate the size of your office space as percentage of the entire floor space of your house. For example, if the total area of your house amounts to 100m2 and your office floor area amounts to 10m2, then your office space is 10%. This then is the amount you can claim as a percentage of your bond, as well as a percentage of your rates and taxes.
Should you still need help on these (and other matters) related to your SOHO, the why not speak to a tax advisors, or Paymaster People Solutions for further assistance. Simple things might be overlooked. For example, how your income is reflected can affect a legitimate claim. There are slightly different rules for commission earners and a tax advisor can explain this is clarity to you.