Home office, can you please provide me with what the act states with regards the claim of home office expenses during the 2013 tax year? I am busy with a NOA that SARS is not willing to progress further as the auditor is of the meaning that if the taxpaye
Important:
This answer is based on tax law for the tax year ending 28 February 2017.
Answer:
We accept that you filed the notice of objection based on the grounds for the assessment given on the assessment (the IT34) – in other words, you didn’t ask for reasons for the assessment. You didn’t provide us with the grounds for the disallowance of the deductions. For purpose of the guidance that follows, we accepted that “the auditor is of the meaning that if the taxpayer does not have a separate office” implies that this is the basis for the disallowance of the objection – as notified by SARS in terms of rule 9(1).
You also didn’t indicate if the individual is in receipt of remuneration or if the deduction was made against income derived from another trade.
The relevant law (relating to the study at home) is found in section 23(b) - domestic premises used for trade purposes, which must be read with section 23(m) if the individual is in receipt of remuneration. Section 23(m)(iv) is relevant to the deduction which is allowable in this instance. Of course, the expenditure must first qualify for a deduction under section 11(a), (d), 24J, etc. Section 23(m) requires that the “remuneration is normally derived mainly in the form of commissions based on his or her sales or the turnover attributable to him or her”. Section 23(m)(iv) doesn’t have this limitation.
Section 23(b) then limits the deduction to the trade part by talking the private part of the expense away (in a sense).
The law requires that the “part that is so occupied must be specifically equipped for purposes of the trade” and “regularly and exclusively used”. This may well be what the basis of the disallowance of the objection was.
The other section 23(b) requirements, where “no deduction shall in any event be granted where the taxpayer’s trade constitutes any employment or office”, are:
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where the taxpayer’s “income from such employment or office is derived mainly from commission or other variable payments which are based on the taxpayer’s work performance and his duties” the deduction is only granted if that taxpayer’s duties “are mainly performed otherwise than in an office which is provided to him by his employer”; or
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that the taxpayer’s “duties are mainly performed in such part” (section 23(b)(ii).
You can find an electronic copy of the Income Tax Act, under the heading ‘Tax’ at:
http://www.lawsofsouthafrica.up.ac.za/index.php/current-legislation
You must also refer to the practice generally prevailing. It is available on the SARS website - Interpretation Note: No. 28 (Issue 2) – it deals with “the deductibility of home office expenses incurred by persons in employment or persons holding an office.”