TAX IMPLICATIONS FOR EMPLOYEES WORKING FROM HOME
Corporates have been required to implement a number of measures in response to the COVID-19 lockdown regulations. Some corporates continue to allow their employees to work from home on a full-time or ad hoc basis, in order to ensure proper social distancing at the workplace.
Employees working from home, may need to incur additional expenditure to enable them to continue with their work duties. What are the tax implications for employees that are required or allowed to work from home?
TAX DEDUCTIONS AVAILABLE TO INDIVIDUALS
Generally, the tax deductions that can be claimed by individuals are limited by the provisions of sections 23 (b) and (m) of the Income Tax Act. Allowable deductions include retirement fund contributions, and section 11(e) wear-and-tear allowances with respect to assets acquired for purposes of trade to the extent to which they are used in the production of income. Section 8 also allows individuals that receive travel allowances to claim a deduction for business-related travel expenditure.
Where an individual derives more than 50% of his / her income from commission or other variable performance-based payments (“a commission earner”), said individual is not subject to the provisions of section 23(m). Therefore, commission earners may also claim tax deductions for other business-related expenditure, provided that the relevant requirements of the Income Tax Act have been met. For example, a commission earner may claim a section 11(a) tax deduction for stationery, telephone and data costs incurred, provided said expenditure was incurred for purposes of his / her trade, and was in the production of income.
Another possible tax deduction that is available to both salaried individuals (i.e. individuals that earn no commission or earn commission totalling 50% or less of their total income), is any qualifying home office expenditure incurred.
TAX DEDUCTIONS FOR QUALIFYING HOME OFFICE EXPENDITURE
Commission earners and salaried individuals are entitled to claim a deduction for qualifying home office expenditure, where they spend 50% or more of their workings hours at their home office during a relevant year of assessment.
Home office expenditure is expenditure incurred with respect to the portion of the individual’s residence occupied for purposes of his / her trade, for example, rental payments, interest payments on a bond and repairs and maintenance costs attributable to the home office.
Home office expenditure will constitute qualifying home office expenditure (i.e. it will be deductible for income tax purposes) where the part of the home in respect of which a tax deduction is claimed, is:
- Occupied for purposes of undertaking employment duties (i.e. the trade);
- Specifically equipped for purposes of such trade; and
- Regularly AND exclusively used for purposes of such trade
Therefore, employees have to identify and maintain a specific part of their homes for use as a home office. This means that employees that work on an employer provided laptop at their dining room table would not be entitled to claim a deduction for home office expenditure, as a dining room is usually not exclusively used as a home office, and can also not be said to be specifically equipped to undertake employment duties.
If the home office is only used occasionally, for example for work after hours, or over weekends, the employee would also not be entitled to claim a tax deduction for any home office expenditure, as the home office is not regularly used to undertake employment duties.
Evidently, the scope of qualifying home office expenditure that can be claimed as a tax deduction by salaried employees is limited. Furthermore, employees desiring to claim a tax deduction bear the burden of proof to prove that they are entitled to such deduction, and should, therefore, maintain adequate supporting relevant material. Another drawback is that, when the individual decides to sell his / her home, he / she will have to account for the home office expenditure previously claimed as a tax deduction in the determination of the capital gain / loss resulting from the disposal.
Where cash flow permits, it may be beneficial for employers to consider reimbursing salaried employees for certain employment-related expenditure, for which employees would not be able to claim a tax deduction, such as telephone, data, printing and stationery costs. Another option may be to grant employees the right of use of assets such as cell phones, provided that these cell phones are used only for business-related calls, as the aforementioned constitutes a taxable fringe benefit with a nil value. Therefore, the benefit would not be subject to PAYE and the employer is relieved from the administrative burden resulting from the consideration and processing of reimbursive claims.