Industry bodies have made submissions to National Treasury for additional tax relief that has not been included in the 2020 Draft Disaster Management Tax Relief Bill or Draft Disaster Management Tax Relief Administration Bill. The deduction of home office expenses has again been left out of the bills, despite various earlier submissions.
Since the national lockdown started at the end of March there has been no relief for individuals who had to hastily set up an office in their homes to be able to continue working. It seems that many will continue working from home for the better part of this year, due to the slow lifting of lockdown restrictions.
As things stand, individuals have to meet strict requirements in order to claim any home office expenditure. Most salaried employees will find little relief under the current rules.
Nicoline Benzien, associate tax director at BDO, says only commission earners, independent contractors and taxpayers carrying on business as sole proprietors can claim home office expenses.
It is a requirement that the home office is specifically equipped for the purpose of one’s trade and that it is used “regularly and exclusively” for such purpose. This means the part of your home designated as your office space may not be used for domestic purposes.
Benzien adds that the deduction of expenses is limited to the portion of one’s home used for business purposes, therefore the ratio of the floor area of the home office to the floor area of the premises must be applied.
“Generally, one can claim rent paid, interest on one’s mortgage bond, rates and taxes, cost of maintenance and repairs to the premises. Other expenses typical to running a home office include telephone and fibre lines, cleaning and wear-and-tear on office equipment.”
Employees can claim deductions if 50% of their remuneration is variable – such as commissions or bonuses – and at least 50% of their working hours is spent away from the employer’s office.
If the individual has less than 50% of remuneration as variable payments, they can still claim home office expenses if they spend more than 50% of their working hours working from the home office.
Benzien notes that the home office must be used mainly for trade and for the 2021 tax year, it would mean for at least 187 days of the tax year.
She warns that people wanting to claim the home office deduction should be aware of the negative tax impact it may have on the calculation of their capital gains tax (CGT) when they sell their property one day.
“The current R2 million primary resident exclusion afforded to taxpayers will be adjusted to take into account the portion of the primary residence used for trade purposes. The apportionment will further take into account the length of time that the home office was used for trade.”
The South African Institute of Chartered Accountants (Saica) has asked for relief from the pro-rata CGT that may arise on the sale of a house if claims were allowed during this period.
Employers have tried to alleviate the additional cost of setting up a proper home office by offering employees an allowance. However, this attracts additional tax for employees since allowances are taxed as fringe benefits.
Both Saica and the South African Institute of Tax Professionals (Sait) have called for additional tax measures to alleviate the financial strain ordinary workers are experiencing.
They, together with Cosatu and PwC, this week made submissions on the disaster management tax bills during a hearing of the parliamentary standing committee on finance.
Saica project director Sharon Smulders says in its submission many employees needed proper chairs, screens, printers, stationery and data, WiFi and fibre access.
“As many employers and employees experience cash flow constraints it is suggested that a tax-free, once-off provision is made without the need to retain ownership of the assets in the employer.”
This amount can be capped at a maximum of R5 000 for employees without a disability and uncapped for those with a disability.
Saica has asked for the relaxation of the strict requirements – at least for the lockdown period – since employees generally have no choice but to work from their homes during this period. They will obviously incur various costs during this time.
However, she says a tax-free allowance may be the easiest way (instead of relaxing the restrictions) to assist employees to work productively from home and to continue earning taxable revenue for the country.
Company car benefit relief also sought
Beatrie Gouws, head of stakeholder management and strategic development at Sait, has also asked for temporary relief in terms of company car benefits.
In their submission to the standing committee, Gouws argues that taxpayers are being taxed on a company car benefit when they are working from home and not travelling privately.
In terms of the Income Tax Act any private use of a company car is taxed as a fringe benefit. These vehicles may not be used for private purposes during the lockdown, only for essential trips to buy food or seek medical care.
Saica suggests a temporary suspension on the fringe benefits relating to the private use of an employer-provided vehicle during the prolonged lockdown.
Alternatively, Saica requests a reduction to the percentages applied to the determined value of company cars to all or certain categories of employees during the lockdown.
National Treasury says it has taken note of all the submissions and will prepare a response document to parliament by next week. However, these bills have already been submitted to parliament and will have to be amended if any of the submissions are taken into account.