In the past two years we have seen unprecedented changes in the way we live, work, shop and interact with each other. However, legislation governing many of these human activities remains stuck in the 1960s.
One such example is the legislation governing home office expenditure. A global pandemic hit us and almost overnight companies had to adjust in order to continue their operations. Millions of people started working from home.
Despite promises in the 2021 Budget Review that tax provisions for travel and working from home would be reconsidered in terms of their efficacy, equity in application, simplicity of use and certainty, nothing has changed.
The legislation is what it is. There are no new proposals, no new amendments. The most recent draft interpretation note issued by the South African Revenue Service (Sars) makes no concessions. It rubbed salt in the wound. It only “elaborated” and “clarified” the existing legislation.
The legislation does not account for the fact that people had to install fibre or some form of access to the internet, that they had to find space in their homes to use “exclusively” for the purpose of conducting their trade, and that they had to ensure the lights stayed on because Eskom is incapable of doing so.
The logic behind the reason employees who have to work from home are prohibited from claiming certain deductions is, well, quite baffling.
One example is the exclusivity test.
This test ensures that the home office may only be used for the purpose of conducting a trade to generate income – and it must be used “exclusively” by the taxpayer claiming any deductions.
In South Africa this is really still a “test”. A family of four lives in a three-bedroomed house. Mom and dad share a room, the kids share the other room and the third room is used as a study. Then Covid-19 struck. Mom and dad were sent home to conduct their trade from home, which they did for most of the 2020/21 tax year.
They shared the study – each having their own desks and own computers. They will probably not be able to claim any of their expenses. Why? Sars makes no exception for shared spaces.
No prohibition, but …
Sars is not prohibiting taxpayers from sharing a work space. However, if they do, it becomes “highly likely” that neither will qualify for any deductions, warns Corlia Faurie, facilitator at ProBeta Training. She was speaking during a South African Institute of Taxation (Sait) webinar.
In the Sars draft interpretation note it gives an example of a married couple, a lecturer and a tailor who share a home office and wanted to claim deductions for home office expenditure.
“It is a requirement that the home office be specifically equipped for purposes of the taxpayer who is claiming the deduction’s trade; and that it be exclusively used for such purposes,” says Sars.
In this example, which may well be the case in many South African households, the couple does not meet the exclusivity test, therefore no deductions.
In its initial response to the draft note Sait said it became apparent that application of the legislation has the effect of being an “elitist” provision; only those taxpayers who have the luxury of maintaining a home office that is exclusively used by one member of the household, for purposes of that individual’s trade, may claim their expenses.
National Treasury has worked hard to ensure that income tax legislation remains progressive and fair, but according to Sait this provision has remained unchallenged thus far.
“The current effect of the legislation is not appropriate in the South African context where rooms are shared by more than one person, or where rooms are multi-purpose,” it says.
According to the institute, employees who are required to work from home should not be penalised because they do not fit into a “historic model” that is based on an individual having exclusive use of a formal home office.
Yes, but … and no
Besides this disappointing state of affairs, any effort to keep the lights on to earn an income by way of installing a solar system will also get you no tax relief.
Under Section 12B of the Income Tax Act taxpayers are eligible for a capital allowance for renewable energy, but because it is not listed as an allowed deduction under Section 23(m), which deals with deductible expenses, there can be no deduction.
The biggest change is perhaps the fact that salaried employees who have a home office and have been qualifying for a deduction of the interest expense on their mortgage bond will no longer get this relief.
The interest deduction under Section 24J of the act is not an allowed deduction under Section 23(m). Therefore, when the new guidelines become effective in March next year, interest on the home loan will no longer be deductible.
Sars has invited taxpayers to comment on the latest draft interpretation note until January 14.
Sait says it will be making further submissions with the hope of seeing “more progressive legislation” that is reflective of the modern South African context.