Tax filing season for individuals officially began on Thursday (July 1), and runs to 23 November, and falls in a time where the impact of Covid-19 has meant more people are working from home than ever before.
The South African Revenue Service (SARS) commissioner Edward Kieswetter said: “The need for many employees to work remotely has been necessitated by the Covid-19 pandemic in an unprecedented manner.
“We understand that many employers, and employees alike, are grappling with establishing a new normal. We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes. It may be more prudent to wait and establish a more sustainable rhythm before making the decision.”
Kieswetter called on taxpayers to carefully consider claims for work from home expenses. “It is important to note that the law in this regard has not changed.”
He said that the law remains as it was prior to the Covid-19 outbreak. The commissioner said that as of 1 July, SARS had received just over 1,500 tax returns with home office expenses, which were claimed, of which over 1,300 have been stopped for verification, while the current risk identification rate is 50% in this area.
“We really want to caution taxpayers to correctly and truthfully complete their returns, as this behaviour will be detected.”
Kieswetter warned that submitting claims in this area comes with trade-offs in future submissions. He also noted that working from home has also saved people from incurring regular costs.
SARS recently published an update on its website in relation to home office expenses.
In considering whether to claim for any related expenses, it is important to note the following:
- An office, appropriately equipped, must have been set up at the place of primary residence;
- The office must have been used regularly and exclusively for work purposes;
- The office must have been used for more than 50% of the employee’s duties or, if the employee earns more than 50% of their remuneration from commission or other variable payments based on work performance, more than 50% of the employee’s duties must have been performed away from the employer’s office;
- Any home office expenses must be linked to employment use and must be verifiable; and
- Home office expenses must be claimed against source code 4028 in the income tax return.
“Where the home office is in taxpayer-owned property, taxpayers should note that formally defining part of a primary residence as a home office will most likely have an adverse impact on a future capital gains determination,” SARS said.
The home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence.
“Careful consideration should, therefore, be given before a claim for home office expenses is made. Taxpayers may also find that working from home led to savings on expenses they would otherwise have incurred, like transport, wear and tear on vehicles and so forth.
“Taken together with the loss of part of the of the capital gains exclusion, these savings may outweigh the benefit of a claim for home office expenses,” it said.
Whilst all claims for home office expenses may be subject to further verification or audit by SARS, it is important to note that there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit, the tax body warned.