Employees Working from Home: Do You Know What Your Tax Benefits Are?
Salaried and Commission Earners – A broad overview of Tax Deductibles in the New Normal
Working from home has been on the rise for the last thirty years or so. From 2000 to 2010 the USA saw an increase of 35% of people working at least one day from home. There was a 159% increase in people telecommunicating in that country between 2005 – 2017. It used to be seen as a perk of certain industries. By 2017 it was commonly recognised as a sound business strategy.
The Covid-19 pandemic last year accelerated this trend. 2020 became the largest global experiment in working from home the world had ever seen. If this trend continues there could be long term repercussions. City planning might even need to be reconfigured.
Questions remain about what exactly the repercussions could be. How they could come about, and their resulting impact, remains to be seen. What is definite, though, is that those who have worked from home could be entitled to very tangible tax benefits. Read on to see if you might be eligible for deductions in the 2020/2021 South African tax season.
The criteria for deducting expenses can be a bit tricky
The legal framework for deducting expenses is logical. However, unravelling the details can be somewhat complex. Not everyone who earns a salary is able to claim back expenses on their tax returns. Not everyone who earns a proportion of commission on their income can automatically claim back business expenditure, either.
Tax Deduction Questions to Ask Yourself
Do you work from an office? Do you earn only a salary? There are two general rules to follow with regards to taxable deductions regarding business expenses.
The first is where most employees normally find themselves. Most workers work for someone else. They earn only a salary and work exclusively from an office or workplace. They will not qualify for tax deductions. The first deduction that might come to mind is the cost to get to the office each day. But salary earners cannot deduct the costs to get to their workplace each morning. This is considered a personal expense.
The second general rule concerns commission earners. If you do not earn a salary, but only earn commission, you are eligible to deduct expenses. Here is an example. When you have no fixed income but derive your income strictly from completed sales, costs incurred in earning are deductible.
These two broad principles prove to be fairly straightforward. The complexity arises when some income is fixed and some is commission based. And there are criteria under which exclusive salary earners are able to deduct certain expenses.
Commission Earners: Do you earn more than 50% of your income this way?
If you make more than 50% of your income from commission, your work expenses become tax deductible. All expenses accrued in the generation of that commission would be treated the same way they are treated for 100% commission earners.
The expenses will need to be recorded and proven. Invoices and logbooks will need to be produced. They will need to be specifically accrued in the earning of income. But they will be tax deductible.
What can again be difficult is if your commission earning dips below the 50% mark. This is as an annual average. You might have earned 98% commission for four months of the year. And then a respectable 25% for the other 8 months. But this makes your average commission earnings 49.3% for the financial year. This is not more than 50% overall. In this case, your expenses will not be tax deductible.
A scenario like this could very easily occur after a year like 2020. Commission earners know this all too well.
The Criteria for Salaried Employees to Claim Work Deductions for Working from Home
There are stringent conditions to meet in order for salary earners to deduct home expenses for tax. The first and most important concerns the annual average time spent working from home. Salary earners working from home would need to work more than 50% of the time from their home office. This is the minimum to qualify for tax deductions. If they do not work that much from home, they will not be able to deduct any expenses. This is even if the expenses have only been incurred specifically due to working from home.
Another very important condition concerns the nature of your home office. This must be set up correctly. This means that a portion of your home must be dedicated exclusively for work use from your home. If your workstation has a bed inside it, you cannot claim for the entire room. This is because it is a bedroom and not an exclusive set up for a home office.
A Rudimentary Guide for Calculating Home Office Expenses
Once you have set up your home office, you need to calculate how large it is in proportion to your property. Using round numbers, tax deductions work along these lines.
If your property is 100 sqm and your home office is 5 sqm, you can claim 5% of the expense of the property as business expenses.
This would include a number of considerations. Rent or monthly interest paid for the property would be deductible. Cleaning, maintenance and repairs to the premises could be claimed as deductions. So would rates and taxes. These are some examples.
In the above scenario, 5% of everything mentioned would be tax deductible.
Another Consideration for Commission Earners
Earning a portion of commission can be very helpful. Bolstering income can assist with unforeseen expenses or be used to save for a family holiday.
Most companies pay a fixed PAYE rate based on your monthly income. There is a scenario to be aware of if you are earning just below the next tax bracket. If this is the case, your annual commission earnings could push you into the next tax bracket. If you were still paying the lower PAYE rate throughout the year you could find yourself liable for the shortfall at the end of the year.
And as mentioned above, if your commission earnings were not more than 50% of your income you would not be able to use expenses to offset this shortfall.
Bonuses and tax
A similar scenario faces salary earners when they get their bonus. Bonuses will be taxed at the same rate as the rest of your monthly salary. However, if your bonus pushes you into the next tax bracket, you would again be liable for the shortfall.
Morebo and Efficient Tax Planning
Morebo encourages maximising your legal tax deductibles. See a video we made on the topic here.
We also recognise the importance of Tax Planning. In an effective investment strategy, tax must be attended to efficiently. One of the elements that our financial consultations produce is a detailed Tax Efficiency Guide. These are based on individual needs and specific requirements. Contact us today to discuss the best way to maximise your tax return with one of our consultants today.
PLEASE NOTE: This article is for informational purposes only. It cannot be taken as sound advice for all taxpayers in all circumstances. Before acting on the information contained in this article, we recommend that readers consult an expert on the topic. Contact Morebo today for more details. Our consultants can assist in confirming your eligibility for deductions today.
Bibliography/Further Reading:
Working from home – statistics and the pandemic
https://time.com/5776660/coronavirus-work-from-home/
https://www.bcg.com/publications/2020/valuable-productivity-gains-covid-19
https://www.flexjobs.com/blog/post/flexjobs-gwa-report-remote-growth/
https://www.flexjobs.com/blog/post/complete-history-of-working-from-home/
Commission Earners:
https://www.sowetanlive.co.za/business/money/2019-11-20-how-tax-is-calculated-on-your-bonus/
https://www.sataxguide.co.za/deductions-available-for-commission-earners/
https://www.taxtim.com/za/blog/top-question-on-commission-earners
Salaried workers working from home:
https://www.sableinternational.com/blog/working-from-home-claim-tax-back-from-sars
