What tax deductions can you claim for a home office? Working from home is part of our “new normal” and home offices are predicted to remain a permanent feature of many employment relationships in the future.
Both employees and their employers should be familiar with the tax angles, in particular the opportunity to claim tax deductions. When and how do you qualify for deductions? What expenses can you deduct? We discuss the various ins and outs with a simple practical example to illustrate.
If you own your own home, read our tail ender note on the possible impact of claiming for a home office on your Capital Gains Tax liability when you sell your house.
"We like to give people the freedom to work where they want, safe in the knowledge that they have the drive and expertise to perform excellently, whether they at their desk or in their kitchen. Yours truly has never worked out of an office, and never will" (Richard Branson)
Example: Home Office
Calculation of deductions claimed
Elizabeth needs to work from home and purchases…
= Total equipment and furniture
Elizabeth's monthly rates, water, refuse and electricity cost
Elizabeth's monthly rental of her home
Her monthly data and cell phone cost
Her Annual tax return
Wear and tear computer equipment
3 year write off
10 year write off
=Total wear and tear deduction C22
Water, rates, refuse and electricity
=Total deductions claimed
Company reimburses Elizabeth for these costs as they are not allowable per the Income Tax Act
Annual depreciation computer = 12 000/3 = 4 000
Annual depreciation furniture = 10 000/10 = 1 000
Size of Elizabeth's house
Size of her home office
Claim is (25/200)
12,5% of allowable costs
Annual municipal charge
48 000 4 000 monthly
Claim is 48 000 x 12.5%
Rental claim = annual rental x 12.5%
30 000 240 000 x 12.5%
“It takes a lifetime to build a good reputation, but you can lose it in a minute” (Will Rogers)
Whilst many employees enjoy working from home, this is a time of uncertainty for them. They read of people being retrenched or furloughed and wonder if they are next. The isolation of working from home can fuel this uncertainty.
Yet it is these employees who daily interact with customers and other stakeholders. If staff have negative feelings about the company, this can be quickly picked up by customers. Social media can spread this quickly and suddenly management have to start undertaking damage control. Recently, an English business decided to not pay staff until the government’s wage subsidy kicked in. Following an outcry, management swiftly reversed this and paid the staff.
Contrast this with Quickbooks who kept their cleaning staff on full pay despite empty offices. L’Oreal have made a point of paying small suppliers quicker than usual.
The decisions you make send out signals to your staff and they are much more likely to view you favourably if you are showing fairness to your stakeholders.
Think also of your investors – they tend to support businesses where carefully considered long-term decisions are made by management. Don’t forget having a holistic outlook and making the environmental, social and governance (ESG) criteria part of your strategies.
In a recent case, staff supported management putting them on furlough after they were persuaded by management that this was the best long-term strategy to preserve jobs in the business.
Staff are more motivated if they know they have commitment and active support from their bosses.
IBM have started a program of supporting employees who need to take out time to educate their children or look after family members. They have also encouraged their staff to raise any individual difficulties they have with their managers. Introducing this type of flexibility makes managers’ jobs harder to do and IBM have created separate online chat channels for managers to network with their peers and find solutions to employees’ problems.
Other companies with diversity in the workplace have openly supported Black Lives Matter and have made sure that when there are pay cuts or retrenchments, there is no discrimination against minorities.
The world has changed and become more uncertain and more flexible. You need to plan carefully and act to ensure you stay on top of the situation and keep the support of your staff.
It is a criminal offence to make false statements to, or to not comply with notices from, the Regulator.
This transition period is going to be onerous on businesses. They need to determine what information falls into the Act, how it is used, protected, stored, who has access to it. Businesses will also need to get the relevant consents from staff and other stakeholders. What privacy statements do you need to make, what protocols do you need to put in place over your information and website?
31 August – VAT electronic submissions and payments
31 August – CIT Provisional Tax Payments where applicable
31 August – Personal Income Tax Provisional Payments.