With the 2023/24 tax submission season well underway business owners, sole proprietors, independent contractors, commission-based earners and salaried employees are eager to explore various tax deductions, including those related to their home offices. Danielle Luwes, tax manager at Hobbs Sinclair Inc. shares valuable insights on these deductions, offering a list of deductible expenses for both business owners and salaried employees, along with recent updates from SARS.
“Home office deductions, governed by section 23(b) of the Income Tax Act, offer significant tax benefits for business owners and certain employees,” says Luwes. Understanding the permitted expenses is vital to avoid claiming prohibited ones so it is important to stay updated with SARS’ guidelines, as tax regulations may change she advises.
An important consideration is that if the home office is in the taxpayers owned property, formally defining part of a primary residence as a home office, will most likely have an adverse impact on a future capital gains determination. 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 thought should, therefore, be given before a claim for home office expenses is made.
Salaried employees can also claim deductions if they meet specific criteria such as using their home office regularly and exclusively for work, spending more than 50% of their total working hours in the home office and having a dedicated workspace. However, tax- payers who meet clients at their home in their dining room would not qualify. “Similarly, a room which is used as an office in the morning and doubles as a guestroom, also would NOT qualify,” clarifies Luwes.
Notable updates to Section 23(b) prohibits deductions for domestic or private expenditure, but the portion of premises exclusively used as a home office is permitted for deductions. Regarding premises repairs, these must be directly related to the home office to be deductible. “For instance, if you repair the home office room’s wall or window, the full expense can be claimed without apportionment. However, if a repair affects both the home office and non-business areas, an apportionment is necessary,” explains Luwes.
Furthermore, SARS have stated in their latest Interpretation Note, that interest on bond expenses will no longer be allowed to be included as a home office cost from tax year 2023 onwards but taxpayers can continue to claim their interest on bond expenses in 2022 and previous years.
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.
In addition to the home office deduction, business owners may also claim the following deductions:
- Business expenses: Ordinary and necessary expenses directly related to operating the business can be claimed. This includes expenses such as office supplies, business-related travel, marketing costs and professional fees.
- Vehicle expenses: If a vehicle is used for business purposes, a portion of the vehicle’s expenses, such as fuel, maintenance, insurance, and depreciation, can be claimed.
- Rent and utilities: Business owners who rent their workspace or operate from a home office can claim a portion of rent, utilities, and related expenses.
- Depreciation: Capital assets used in the business, such as computers or machinery, can depreciate over time, allowing for a deduction on the annual depreciation expense.
- Interest on business loans: Interest paid on loans used for business purposes can be claimed as a deduction.
- Retirement contributions: Contributions to approved retirement funds are tax-deductible for business owners.
In addition to the home office deduction, employees may also claim the following deductions:
- Travel expenses: If employees use their vehicles for work-related travel, they may claim a portion of vehicle expenses.
- Work-related uniforms and equipment: Expenses related to work-specific uniforms, tools, and equipment can be claimed.
- Professional memberships and subscriptions: If memberships or subscriptions are directly related to an employee’s job, they may be tax-deductible.
- Educational expenses: In some cases, employees can claim deductions for work-related courses or educational expenses.
Whether you’re a business owner or a salaried employee you should seek professional tax advice to ensure accurate and compliant tax submissions for 2023/24.