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Can SARS disallow home office expense deduction if taxpayer earned ‘3601-coded’ income?

Monday, 12 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client that earns income 3601, but he is required to run a home office, as per attached letter. SARS has rejected the home office claim, as he earns under code 3601 – is this correct?

The tax guide states that they are required to:

  1. Earn income on a sliding scale, such as commission, dependent on performance
  2. Required to have a home office

The guide though does not state whether BOTH the above, or only ONE of the above are required.

Please clarify for me.

A: A deduction in this regard can only be made to the extent permitted by section 23(m).  SARS sets out the practice generally prevailing in Interpretation note 28.  

Principally section 23(m) allows ‘any deduction which is allowable under section 11 (a) or (d) in respect of any rent of, cost of repairs of or expenses in connection with any dwelling house or domestic premises, to the extent that the deduction is not prohibited under paragraph (b)’.  Paragraph (b) (section 23(b)) reads as follows:

No deductions shall in any case be made in respect of … domestic or private expenses, including the rent of or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling-house or domestic premises except in respect of such part as may be occupied for the purposes of trade: Provided that—

(a) such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes; and

(b) no deduction shall in any event be granted where the taxpayer’s trade constitutes any employment or office unless—

(i) his 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 are mainly performed otherwise than in an office which is provided to him by his employer; or 

(ii) his duties are mainly performed in such part.  

SARS is not correct to reject the claim on the basis that the income is from remuneration (code 3601) only.  The mainly from "variable payments” is also not relevant where the person’s "duties are mainly performed in such part”.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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