Over the past two years, we have witnessed unprecedented changes in the way we live, work, shop and interact with each other. However, the legislation governing many of these human activities remained stuck in the 1960s.

The legislation governing home office expenses is one example. A global pandemic has hit us and almost overnight companies have had to adapt in order to stay in business. Millions of people have started working from home.

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Do you work from home? Read it …
Concerns about the narrow interpretation of home office deductions

Despite the promises in the 2021 budget review that the tax provisions for travel and working from home would be reconsidered in terms of efficiency, fairness in application, ease of use and certainty, nothing has happened. changed.

The law is what it is. There are no new proposals, no new amendments. The most recent draft interpretive note issued by the South African Revenue Service (Sars) makes no concessions. He rubbed salt in the wound. It only “elaborated” and “clarified” the existing legislation.

The legislation

The legislation does not take into account the fact that people had to install fiber optics or some form of Internet access, that they had to find a space in their home to use “exclusively” for their occupation, and that they had to make sure the lights stay on because Eskom is unable to do so.

The logic behind why employees who have to work from home are prohibited from claiming certain deductions is, well, quite baffling.

The exclusivity test is one example.

This test ensures that the home office can only be used for the purpose of carrying on a business activity to generate income – and it must be used “exclusively” by the taxpayer claiming deductions.

In South Africa, it is still really a “test”. A family of four lives in a three bedroom house. Mom and Dad share one room, the kids share the other room, and the third room serves as an office. Then the Covid-19 struck. Mom and Dad were sent home to practice their trades from home, which they did for most of the 2020/21 tax year.

They shared the study – each with their own desk and their own computer. They probably won’t be able to claim any of their expenses. Why? Sars is no exception for shared spaces.

No ban, but …

Sars does not prohibit taxpayers from sharing workspace. However, if they do, it becomes “very likely” that neither will be able to claim deductions, warns Corlia Faurie, facilitator at ProBeta Training. She was speaking at a South African Tax Institute (Sait) webinar.

In the Sars Interpretive Note draft, he gives the example of a married couple, a public speaker and a tailor who share a home office and wish to claim deductions for home office expenses.

“It is a requirement that the home office be specially equipped for the purposes of the taxpayer claiming the deduction trade; and that it be used exclusively for such purposes, ”says Sars.

In this example, which could well be the case in many South African households, the couple does not pass the exclusivity test, so no deductions.

In his initial response to the draft note, Sait said that it has become evident that the application of the law has the effect of being an “elitist” provision; only taxpayers who have the luxury of having a home office that is exclusively used by a member of the household, for the purpose of that particular’s business, can deduct their expenses.

The National Treasury has worked hard to ensure that income tax legislation remains progressive and fair, but according to Sait, this provision has so far remained unchallenged.

“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,” he says.

According to the institute, employees who are required to work from home should not be penalized because they do not fit into a “historical model” 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 installing a solar system will also not get you any tax relief.

Under Section 12B of the Income Tax Act, taxpayers are eligible for a capital deduction for renewable energy, but because it is not listed as an allowable deduction under the ‘Article 23 (m), which deals with deductible expenses, there can be no deduction.

Perhaps the most significant change is the fact that salaried employees who have a home office and who were entitled to an interest expense deduction on their mortgage obligation will no longer get this relief.

The deduction of interest under Section 24J of the Act is not a permitted deduction under Section 23 (m). Therefore, when the new guidelines take effect in March of next year, the interest on the home loan will no longer be deductible.

Sars invited taxpayers to comment on the latest draft interpretation note until January 14.

Knows says he will make further submissions in the hopes of seeing “more progressive legislation” that reflects the modern South African context.