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Deductible Expenses for Individual Income tax

COVID-19 has changed work dynamics. Employees have had to adjust from working at the office to working from home due to COVID-19 precautionary measures. This has caused many employees to incur extra expenses which raise questions on whether these expenses are tax deductible or not. Here is an overview on this topic.

For expenses to be deductible under the Income Tax Act, certain requirements need to be met, which are:

  • It must be an expense or loss.
  • Actually incurred.
  • In the production of income.
  • Not of a capital nature.

Most home-office expenses do meet the above-mentioned requirements, however, there are additional requirements in conjunction with the above depending on the type of individual.

Firstly, the office must be used for the purpose of trade. The definition of trade includes employment according to the Income Tax Act. Therefore, working from home is for the purpose of trade. In order for the home-office expense to be deducted, the home-office must meet the following requirements:

  • The office must be a separate room specifically equipped as an office.
  • The office must be used regularly for the purposes of trade.

If the trade is employment or holding of an office:

  • At least 50% of the income must be derived from commission or other variable payments based on the individual’s work performance, and the individual’s duties were not performed mainly in an office provided by an employer;
  • For the expenditure to be deductible at least 50% of the individual’s salary must come from holding that office OR;
  • At least 50% of the individual’s time must be spent working from home in the home office

The list of home expenses that can be deducted when the requirements have been met are;

  • Rent
  • Interest in bond
  • Repairs on the premises
  • Other typical expenses such as stationery, phone, rates and taxes, office equipment, etc.

 

However, for individuals who are employees and meet the above-mentioned requirements, expenses that are deductible are rentals, repairs, wear and tear and anything related to the house or domestic premises which meet the requirements of the general deduction formula.

In conclusion, an individual can claim home-office expenses for working from home if the expenses in the home-office meet the requirements of the general deduction formula and the office is used mainly for trading purposes according to the definition of trade in the Income Tax Act.

Should you wish to know more about any of the above benefits or how to structure your tax effectively and efficiently, please contact us at Tax@rain.org.za.