The Covid-19 pandemic has caused great hardship and the lockdown, which was intended to mitigate its effects, has changed life as we know it.
Lockdown levels 5, 4 and, to some extent, 3 have left most people immobile and working from home has become essential for the survival of companies and earning an income.
Can the expenses incurred as a result of working from home – electricity, rent or mortgage bond repayments – be claimed as a tax deduction against the income earned by employees? The answer is not a simple yes or no.
Section 23(b) of the Income Tax Act prohibits the deduction of domestic and private expenditure related to premises not occupied for trade or of any dwelling, such as a house or domestic premise, and section 23(m) prohibits the deduction of expenditure related to any employment of a person in respect of which they derive any remuneration.
To put it bluntly, employees are prohibited from claiming home office expenses, as they are related to a dwelling and by virtue of arising from an employer-employee relationship.
However, there are viable avenues to reduce the tax liability of employees and accommodate home office expenses incurred during the lockdown. These avenues include:
Tax planning
Sections 23(b) and 23(m) restrict the deduction of home office expenses. However, there are exceptional circumstances listed in section 23(b). These exceptional circumstances enable employees to deduct a portion of the expenses relating to their home office, in the following circumstances:
- The home office must be specifically equipped for the purposes of your trade. Therefore, your home office must be set up and contain equipment that validates that the space is essential to your occupation.
- The home office must be used mainly for trade purposes. This means that it must be used for more than six months of the tax year, as “mainly” means the home office must have been used for more than 51 percent of the tax year (at least 187 days).
- The home office must be exclusively used for trade purposes. This means the part of the home designated as your office space may not be used for domestic purposes – for example, you cannot declare that having a desk in your main bedroom makes it your home office.
- The onus is on you to prove the above at all times.
Reimbursements
Reimbursements from an employer have the benefit of not being taxable, as they do not constitute remuneration. Another benefit is that the home office does not have to meet the specific requirements that lift the applicability of section 23(b) and section 23(m).
However, the employee must bear the office expense first, and keep all invoices and receipts to be able to claim the amount from the employer, and the expense must be a concomitant on your rendering services to your employer.
Advances from employers
An advance entails receiving an amount from your employer to be used for your home office expenses. Advances have the same benefits as reimbursements.
However, the expense must also be affiliated to the rendering of your services to your employer, and all invoices and receipts must be kept.
If the advance is excessive and not fully utilised by the employee, the employer will claim the excess from the employer, and if the advance is deficient, the employee will claim a reimbursement from the employer.
No-value fringe benefits
(In terms of the Seventh Schedule of the Income Tax Act) Any communication service provided to an employee will not be taxable if the service is used mainly (more than 51 percent) for the purposes of the employer’s business.
Casual loans from an employer
Casual loans of less than R3 000 granted by employers to employees are not taxable if granted as stipulated in the Seventh Schedule.
Conclusion
Employers have feasible relief at their disposal, to help employees ride out the lockdown. However, it is imperative to note that, for any method elected, evidence must always be maintained to discharge the onus that an amount is deductible, or not taxable.
Ashley Mhona is a tax consultant at Probity Advisory and Willem Oberholzer CA(SA), MCom (Tax) is the chief executive of Probity Advisory.