Sars nixes R1.8bn of R2.9bn in home office expense claims

• Criteria were not met or calculations were incorrect, Kieswetter tells MPs

The SA Revenue Service (Sars) has disallowed R1.8bn of the R2.9bn claims for home office expenses made to date in the 2021/2022 tax year, Sars commissioner Edward Kieswetter told MPs on Friday.

This flood of claims arose from the Covid-19 pandemic and the lockdowns imposed by the government to deal with it, which resulted in thousands of workers being forced to work from home. This trend is likely to continue as businesses have accommodated themselves to remote working.

The SA Institute of Chartered Accountants (Saica) has appealed for a change in the law to allow a broader definition of a home office. The Income Tax Act stipulates that expenses can be claimed only when a dedicated office is used regularly and exclusively for home work and is specifically equipped for that purpose. No expenses for working at the dining room table are allowed, for example.

In a briefing by the National Treasury and Sars to parliament’s two finance committees, Kieswetter said that so far in the current tax year, Sars had received more than 76,000 returns in which individual taxpayers claimed home office expenses.

“Of course, we now have more remote work and, unfortunately, some taxpayers have taken a chance to see if they can make an impermissible claim. We have had to tailor our risk rules to look at this.

“Our risk engine stopped almost 66,000 of the 76,000 claims (86%) and about 79% of these that were selected have been completed and to date 60.4% of these claims have been adjusted, yielding R545m,” Kieswetter told MPs.

“In terms of the actual home office expenses claim, there was a total claim against this line item of R2.9bn.

“When we flagged this, about 3,300 taxpayers have to date changed their minds. They submitted a correction and said, ‘sorry you can remove that, we no longer want you to consider it’. Just that yielded a value of R334m.

“In total, our verification work resulted in R1.8bn of the R2.9bn claims to be disallowed, meaning that the actual home office expenses claim which we will allow will only be R1.1bn.

“So you can see from just one area of work, if [we] don’t put a laser focus on it, it will cost the fiscus almost R2bn.”

He explained that claims were disallowed because taxpayers did not meet the specified criteria or because of incorrect or incomplete calculations of their expenses.

Saica project director for tax advocacy Sharon Smulders said in an interview after the meeting that it is most likely that people fell foul of the requirement that home office expense claims can only be made when work is conducted from an office specifically equipped and regularly and exclusively used for work purposes.

Expenses can include a proportionate share of rates and taxes and electricity and Sars requires the submission of a plan of the dwelling to substantiate this apportionment.

There have been indications that the law will be changed. The 2021 Budget Review stated that National Treasury was conducting a travel and home office allowance review in a multiyear project. But Smulders said this would be too late for taxpayers who had already submitted their 2020 and 2021 tax returns.

Saica has called for a relaxation of the exclusivity rule to one that stipulates that the home office should “mainly” be used for work purposes.

Smulders noted that working from home is not only a result of the pandemic, but also a result of changes brought about by the digital and gig economy.

“Working from home has become the new norm and our tax rules need to be adjusted accordingly so as not to prejudice those individuals who are now working from home”, Smulders said in a Saica submission to Sars on a draft interpretation note issued by Sars in November last year.

Among other things, the note proposes to disallow the deductibility of interest payments on mortgage bonds as an expense from March 1 2022.

Saica said the exclusion of interest on mortgage bond payments would have a significant

effect on taxpayers as “it is probably one of the largest expenses a taxpayer will have”.

It also urged that provision be made for internet and telephone costs to qualify as deductible expenses.