Working from home has its tax advantages. A certain portion of your home can be claimed as a deduction. But the onus is on the taxpayer to prove that a particular amount is deductible, as well as to justify the claim by showing the calculation of how they arrived at the deduction. Adrian Goslett, CEO of RE/MAX of Southern Africa and accountancy firm Small Business Management Services (SBMS) weigh in.
Although many homeowners will qualify for a tax deduction, it is sometimes a difficult task for them to establish the amount of interest on their bond that is tax deductible, says Goslett. “In certain situations, however simple they may seem at first, there can be complications and queries that could possibly arise. Therefore a homeowner needs to make doubly sure that they know what they are doing, or if they are in doubt they should consult with a professional tax consultant.”
Working on a home purchased for R1 million, Goslett points out that if the homeowner works from home and uses 20% of the property as a home office based on the square meterage calculation, they will be entitled to a tax deduction based on the interest charged on the remaining outstanding bond amount. “If the homeowner has paid off a portion of the bond and currently owes R800 000 and the interest on the bond is charged at 14%, they will be charged R112 000 interest for the year. Because 20% of the property is used as a home office, the homeowner would be entitled to claim 20% of the R112 000 as a tax deduction in the production of their income.”
He adds that it is important to remember that a homeowner will only qualify for a home office deduction if they are employed; working for a salary and a condition of the employment is to carry the cost of keeping a home office as the homeowner’s central business location.
Goslett says that if the homeowner owes R800 000 on their bond and then decides to draw a further R100 000 to finance personal expenses, they will not be able to take into account the tax amount on the additional money taken, as this is not in the production of income. “Any interest that is charged on the additional R100 000 will be excluded from the calculation of deductible interest from the time it is taken, going forward for all the years that the homeowner carries the bond. Essentially what this means is that a smaller percentage of the initial 20% of the interest reflected on the bond statement is tax deductible from then onwards.”
On the flipside of the coin where the homeowner would like to make a substantial payment into their bond, such as an inheritance pay out for example, they will not have the option to only allocate their money to the 80% private portion on the bond and not impact the other 20% that is regarded as business use. “A homeowner may want to only pay the money towards the 80% to maintain the value of the deductible portion of the bond. However this is not possible as the bond is regarded as one account that cannot be divided or proportioned into separate segments. Regardless of how the home is divided and what percentage is for personal use and what percentage is for business use, the bond is over the entire property. This means that any money that is allocated to the bond account will reduce the balance of the bond in its entirety.”
He notes that for this reason, if the homeowner has any other loans that are not tax-deductible, it might be a better option from a tax planning perspective to allocate the inheritance to pay off those loans instead.
“As a homeowner, figuring out tax deductibles can sometimes be a rather overwhelming experience. If there is ever any area of doubt, it is best to consult with a professional financial adviser or tax consultant who can provide assistance and guidance through the process.”
Section 23(m) of the Act
Glen McKenzie, head of SBMS’s accounting, payroll and tax services business, says “We have been successful in claiming a portion of rent paid for by taxpayers who are required in terms of their letter of employment, to work from home, and for taxpayers who run their businesses from home.
“This falls under Section 23(m) of the Act. The taxpayer must make sure that Section 23(m) limitation of deductions doesn’t apply to him first. If a taxpayer earns commission and that commission is in excess of 50% of their total income, or they are an independent contractor, then they are entitled to claim a portion of rent and other deductions.
“The area claimed needs to be a dedicated area for this purpose, and not have a dual purpose. For example, a second bedroom used as a home office exclusively, will be deductible, but if the bedroom used for business purposes also served as someone’s bedroom, the room would not be allowed as a deduction.
“SARS would expect reasonable care being taken in determining the deductible portion of the rent, by having the square meterage of the whole house over the square meterage of the dedicated home office being calculated. If that represents say 10% of the total house, SARS would allow 10% of the rental as a deduction.”