Tax savings for Home Office

What is a home study or home office?
Any area of your house (eg. a room or separate entrance or garage) which you use mainly to run your business.

Basic requirement:
An office at home must be specifically set up for a persons trade and used exclusively or regularly for that purpose

Example of home office relating to different trades:
- A self employed consultant will use part of his living room equipped with computer equipment
- Catering business who usually use the garage to store your table and chairs,
- Construction worker who have storage for their tools and an office set up at home for admin
- A person who run a food service (samoosa or koeksister maker) from home
- Photographer who uses part of his house for a studio
- A motor mechanic who uses his garage as his workshop
- Cabinet maker uses his garage or separate entrance mainly for his trade

Home office expenses:
1) House expense
-Rental paid for the house or
-Interest paid on the mortgage bond
-Repairs and maintenance to premises
-Water and Electricity
-Rates and taxes
-Cleaning cost (domestic worker)
-Security (Armed response)
-Insurance
-House phone

2) Office expense
-Wear and tear (use of you computer or any equipment needed for your trade)
-Other office equipment (chair, desk etc)
-Stationery
-Business calls from cell phone

If you are self employed and run your business from home, SARS allow you to claim certain home office expenses against your tax.

In order to claim house expenses your need to:
-Measure the area of your house used for home office eg; 50 sqr meters
-Apportion part of your home office based on the total size of your house eg; 450 sqr meters
-50/450 = 11% of house expenses is claimable
-Keep record of every home office expense

Can someone who is full-time employed and maintain a home office claim any of the expenses?

Requirements:
-Only if more than 50% of your income earned is from commission or non fixed payments and
-You work mainly away from the office of your employer or from home and
-Documented in your employment contract is that you are required to have your own office

Office expense claimable:
Wear and tear on equipment used for purpose of your trade (Eg. Tools, computer, etc.)

Example:
-Mr. Jacobs work full time and also do some work in the evening
-Cannot claim home office
-Mr. Jacobs work full time for an employer but earn commission and work mostly from home and its documented in his employment contract
-Claim home office – only wear and tear expense (use of equipment)

But there is one trick in claiming home office expenses.... when you sell your house a portion of home office must be included in CGT

Here an example:
- Selling price of your house R 8,000,000
- Base cost (What you paid plus all cost of improving) R 6,000,000
- Gain R 2,000,000

Say you have been using part of your primary residence for an office for 1yrs and you have been living there for 5yrs;
- 4/5 is 80% for only domestic purpose
- 1/5 is 20% for domestic and home office purpose

Therefore:
- 4/5 x 2,000,000 = 1,600,000
- 1/5 2,000,0000 = R 400,000

Than bring us to
- 80% x R 400,000 = R 320,000
- 20% x R 400,000 = R 80,000

The amount subject to CGT is
- R 1,600,000 + 320,000 = R 1,920,000
- Less Primary exclusion =(R 1,500,000)
- Net = R 420,000
-Plus: = R 80,000
Gain = R 500,000
- Less annual exclusion = R 12,500
CGT = R 487,500

Remember for an individual only 25% of CGT is included in your taxable income.....25% x R 487,500 = R121,875 is part of your taxable income.