WFH and your tax return

Tax season starts on 1 September and with so many of us having worked from home for the most part of the year to date, it raises some questions about deductible home office expenses. 

While the Income Tax Act makes generous provision for deductions for independent contractors, sole proprietors and those running businesses from home, salaried employees - i.e. those who earn the bulk of their income from an employer - will have to discuss the possibilities with their employer as the decision lies with the employer as to which option is appropriate for each employee. 

Jurie Geldenhuys of JGCo Chartered Accountants explains that the agreement around the home office may differ from employee to employee, with the decision being between the two options below. 

Option 1: Home office allowance

 The employer can give employees who will be working remotely for more than 50% of the 2021 tax year a "home office allowance", which must be taxed in the month as normal taxable income. The office must also be solely used for office work. Some practitioners handle this as a tax-free allowance but SARS has not confirmed this yet. As such, Geldenhuys advises that the allowance be taxed to avoid possible penalties.

Option 2: Reimbursement of expenses

If the employer is willing to handle the admin of supporting invoices for internet cost, cellphone costs, stationery, and computer expenses this option can be used, Geldenhuys explains. The payments to the employee are then reimbursements and tax free, and does not form part of the remuneration. For certain expenses VAT can be claimed by the employer, Geldenhuys adds.

Not only has lockdown changed this situation for thousands of employees across the country but it has also highlighted the feasibility of such an arrangement to employers. "This may well mean that remote working will continue if lockdown regulations are easy, or even indefinitely, so it's a good idea to have a discussion with your employer about your options" Bruce Swain, CEO of Leapfrog Property Group believes.  

"It's important to ensure your paperwork is in order if you intend claiming home office expenses. Retain all documentation related to home office expenses and maintain a spreadsheet of days worked from home," Geldenhuys advises. 

When it comes to selling the property where the remote work took place and for which home office expenses were claimed, any capital gains from the home office portion of the house from the primary residence would need to be excluded, as primary residence and is calculated as a separate asset sold.

This exclusion applies to capital gains up to R2 million  on the disposal of a taxpayer's primary residence or all capital gains if the selling price is less than R2 million. 

"Tax matters can be rather complex, which is why it is always advisable to work with a tax practitioner to ensure your returns are correctly and efficiently done," Geldenhuys concludes.