An analysis of the tax treatment of home office expenditure sought by salaried employees
The South African Revenue Service (SARS) disallowed 60% of home office claims during the 2021 tax year. This is a consequence of the fact that the home office of these taxpayers did not meet the requirements of section 23(b) of the Income Tax Act No.58 of 1963 (IT Act). In this dissertation, various issues have been identified as to the problems taxpayers encountered and continue to encounter when making home office claims on their Personal Income Tax returns. The main issues identified with SARS disallowing the home office claims is resultant of these taxpayers not meeting the “regularly” and “exclusively” requirement. These specific requirements place these taxpayers in a position where they do not have a big enough dwelling-house or domestic premises or they just cannot afford to acquire one, in which they can dedicate a room/area in their living space for regular and exclusive use as a home office. They, therefore, will not meet the home office requirements for tax purposes and will not be able to enjoy a home office tax benefit. In support of the reasons why these taxpayers fail to qualify for a home office tax deduction, several case studies and examples have been provided to illustrate the problems of meeting the home office requirements under the current version of section 23(b). Based on the overall findings and analysis, the current tax treatment of home expenditure fails to practise the principles of a good and fair tax system for all its taxpayers. These tax principles are the foundation of tax reform in South Africa. It is therefore submitted that the provisions of section 23(b) be revaluated to make it fairer for taxpayers to claim home office expenditure regardless of their economic positions. In addition, the ongoing electrical outages in South Africa, the ever-changing working environment and technological advancements, have necessitated the need to work from home. This kind of work arrangement is increasing, and more taxpayers will be making home office claims in the future on their Personal Income Tax returns. An efficient way of dealing with the administrative burden of these taxpayers home office claims being disallowed by SARS as a result of not meeting the section 23(b) requirements, is for SARS to consider granting an allowance or a reimbursement allowance for business expenditure incurred in the course of employment. This method of dealing with a home office expenditure claim is a probable solution for South Africa and in turn will ease the administrative burden of SARS having to deal with numerous objections and appeals.
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