As the old adage goes, change is as good as a holiday. But the way that the novel coronavirus has shaken up the world we live in, has, to the contrary, been extremely disruptive and stress-inducing. For many people, the disruption has come in the form of shifting from the traditional office space to working from home.
People who had been working flexi-hours or may have been self-employed and working from a home office might be very familiar with claiming business-related expenses from their personal income tax as a tax-deductible expense.
For the everyday worker, though, the shift to working from home may incur costs that would not have been necessary had they been able to safely work from their traditional office. If the COVID-19 pandemic has meant that you need to work from home, you may be able to claim some of your business expenses back when submitting your next tax return.
What then are the prerequisites for filing a tax return that includes your home office expenses as a tax-deductible expense?
- You need to have an agreement with your employer that allows you to work from home. Especially since working from home has been necessitated during the pandemic, some of these agreements may have been assumed without due communication. To cover your bases, have the agreement made in writing.
- You need to spend at least 50% of your working hours working from your home office. Since the tax year runs from the start of March through to the end of February the following year, it means that 50% of your time spent working in the tax year must be from your home office.
Generally speaking, the necessitated use of the home for work purposes during the COVID-19 pandemic makes this somewhat tricky because it would require you to work 6 months of the tax year in the home office if you were to make a full return to your business office’s premises later (based on maintaining the same hours). For instance, working 3 months from home and 9 from the office will disqualify you from claiming your home-office as a tax-deductible expense, as you would only have spent about 25% of your working hours from your home office.
- Home office expenses are only tax-deductible if you have an area set aside exclusively for work purposes. Hammering away at your keyboard from your living room sofa, unfortunately, does not qualify you for a home office tax deduction. Makeshift offices or rooms that have a purpose apart from dedicated work do not qualify.
- Additionally, your home office specifically has to be fitted out for the purpose of your work. If there are specific tools or equipment that your work requires, your home office has to be set up with these readily available.
What can you deduct as a business expense?
For anyone who earns more than 50% of their income from a traditional salary, pro-rated tax deductions can be made as it relates to interest on your home loan or rent, as well as the repair and maintenance of your home. That is to say that the tax-deduction is directly related to the portion of your property that is dedicated as a home office and is calculated as a percentage of the whole.
For anyone who earns more than 50% of their income from commission (or income other than that which is earned from a salary) can claim for the same expenses as mentioned above, but can also claim business-related expenses from commission-based activity.
What if you don’t qualify for a tax return on business expenses?
For those who do not qualify for a tax deduction on their home office space, it shouldn’t necessarily mean that you need to take on all of the burdens of your business-related expenses yourself. Where previously you could rely on company internet, for instance, now you would need to use more data per month and incur an additional cost.
The best solution in this regard would be to see if an agreement can be made with your employer to carry some of the costs by reimbursing you for the personal loss suffered. If done amicably, it could only serve to strengthen the relationship with your employer.
While the change brought about from the COVID-19 virus may not be as good as a holiday, it may well be able to pay for one once you are recompensed for your tax-deductible expenses.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).