Many South Africans are still working from home following the outbreak of a second wave of Covid-19 and the extended lockdown regulations. This means a lot of household expenses have now become work-related expenses.
The ability to claim these expenses remains problematic because of the rules, aimed mainly at curbing abuse.
One of these rules stipulates that the person needs a dedicated area in their house used exclusively for work.
“This seems unfair to the many people who work in their lounge or bedroom because they are not privileged enough to live on a big property,” says Yolandi Esterhuizen, registered tax practitioner and director at Sage Africa & Middle East.
“I would welcome the relaxation of these rules, even if only as a temporary measure during the pandemic,” she adds.
There are instances where people will be able to claim some of the expenses, but the burden of proof remains tough.
Burden of proof
Esterhuizen says if someone is employed and earns a salary they will be able to claim deductions if they earn commission (or variable payments) and do not perform their duties mainly in an office provided by the employer.
They will also be able to claim deductions if they do not earn mainly commission (or other variable payments), but work mainly from home (more than 50% of the time).
Esterhuizen says the claimable deductions include interest on a bond, rent of the premises, other expenses such as cleaning, and wear and tear on assets used for purposes of the home office if they are owned by the employee.
The size of the study or room or part of the house in comparison to the house determines the amount that may be claimed. If the study is 20m2 and the house is 200m2, the study represents 10% of the house area and 10% of the running costs relating to the house may be claimed.
Charles de Wet, executive consultant at ENS, says from a policy point of view the rules need urgent attention.
“The current rules are outdated and no longer relevant in a changed workplace.”
Employees who were forced to set up an office at their home and run it (water, electricity, cleaning) have a massive burden of proof.
“Surely they must be able to claim some of their expenses to be in the same position as when they were working from the office,” says De Wet.
If they had to make structural changes in order to have an area that is exclusively used for work, will they be able to claim the expenses?
Esterhuizen has expressed the hope that Finance Minister Tito Mboweni will announce some reforms when he presents his 2021 Budget on Wednesday.
Although some commentators believe the better than expected tax collections (around R100 billion more than expected) could mean that taxpayers may receive fiscal drag relief, De Wet is not optimistic.
Fiscal drag occurs when inflation rather than an increase in income moves a taxpayer into a higher tax bracket.
To this end, National Treasury will likely attempt to generate revenue by “intentionally overlooking” the effects of fiscal drag. This is sustainable because of the current low inflation rate of around 3%.
Companies have been hard hit with lockdown regulations that seems to be never-ending.
According to De Wet the company tax rate (28%) is high when compared to a global average of 23.6%.
Mboweni announced measures last year that would have paved the way for a possible reduction of the corporate tax rate (a restriction on the deductibility of interest and limiting the offset of assessed losses carried forward to 80% of taxable income).
Both these measures were put on hold due to the impact of the Covid-19 pandemic. De Wet expects further announcements in Wednesday’s budget.
The hardship suffered by the liquor and tobacco industries during the ban on sales has prompted calls to government, specifically by breweries, not to increase excise taxes. However, De Wet believes the trend of inflation-related increases is likely to continue.
“It is clear that the country finds itself in a precarious economic position and it will require careful fiscal choices.”