General
1432. Home office allowance
Issue 84 - August 2006

When section 23(m) was introduced (1 March 2002), employees who did not receive remuneration mainly in the form of commission were no longer able to claim home office expenditure against a home office allowance. With effect from 1 March 2006, retrospectively, employees with home office expenditure that meets the criteria for deduction will be able to claim against their home office allowances on assessment for income tax. The following requirements must be satisfied before any deduction will be allowed:

§ The ‘study’ or office or other part of the home used for business must be ‘specifically equipped and regularly and exclusively used’ for purposes of trade, and

§ Either

The employee’s income must be mainly (i.e. more than 50%) in the form of commission or similar variable payments based on performance, and the work must be primarily conducted away from any office provided by the employer. For example, a travelling salesman earning a small fixed salary but who derives most of his income on a commission basis, and who spends less than 50% of his working day at his employer’s premises, will qualify for the deduction of expenditure relating to a home office.

Or

The employee’s duties are mainly performed at the home office. If, for example, in terms of his contract of employment a salaried employee spends most of his time (i.e. more than 50% overall) working in his home study, and the remainder of his average working day on the road or in his employer’s office, the expenditure will qualify.

SARS has provided the following guidelines with regard to a claim for a home study by an employee when he/she submits his/her tax return, in the "Income Tax: Information Brochure" which accompanies the tax return. Full details in support of a claim must be submitted with the employee’s return. However, documentation in substantiation of the claim should be retained and only sent to SARS upon request. The guidelines are:

1. There must be a direct relationship between the incurring of the expenses on a study and the production of income.

2. The employee must, in terms of the requirements of a service contract with their employer be required to maintain a study at his/her private residence.

3. The study may only be used for business purposes.

4. To enable SARS to decide whether the employee is entitled to a deduction for a study or not, the following questions will need to be answered/details supplied:

4.1, What is the nature of the employee’s occupation and why is it necessary for him/her to maintain a study at his/her home?

4.2, A copy of the employee’s service contract, service regulations or personnel code.

4.3, Does the employer place an office at the employee’s disposal at his/her workplace? Full details of any restrictions.

4.4, Is the employee’s work of such a nature that he/she is expected to work at home after hours? Full details of how frequently he/she uses the home study as well as a statement from the employer confirming that use thereof is required.

4.5, Is the employee required to use the home study to interview or supply information to clients or other employees after hours?

4.6, Is the employee’s home study specifically equipped for purposes of his/her trade?

4.7, Is the employee’s study used regularly and exclusively for his/her work?

4.8, To what extent is the study indispensable to the proper carrying out of the employee’s tasks?

5. Should the employee qualify for a deduction, the amount may be calculated on the following basis:

Where

A =

The area in m2 of the area specifically equipped and used regularly and exclusively for trade, and

B =

The total area in m2 (including any outbuildings and the area used for trade) of the residence and

Total costs =

the cost incurred in the acquisition and upkeep of the property (excluding expenses of a capital nature).

Repairs specifically made to the study will not be apportioned, but will be allowed in full. Repairs to the building in general are included in total costs.

Ernst & Young

IT Act:S 23(b), s 23(m)

Editorial comment: Bear in mind that if a portion of your owned home is used for business purposes, this has an impact for CGT purposes. (Refer item 1396.)