Since and during the COVID19 lockdown more of us have been working from home. Either for a few days a week out of the office and others fully from home. These working conditions as a part of your employment requirements lead to possible claims for expenses for home/office use.

Home office deductions claimed during the period of ownership can affect the capital gains tax (CGT) treatment when you sell a property that was your primary residence.

A few key points to keep in mind:

– SA primary residence exemption (CGT) basics

  – When you sell a property that qualifies as your primary residence, you may be exempt from CGT on a portion of the gain.

  – The primary residence exemption is up to R2 million of the gain for individuals (as at current rules; this threshold and rules can change, so verify the latest SARS guidance).

– How home office deductions can interact with CGT

  – If you used part of your home for business/work-from-home (WFH) purposes and claimed deductions against your income for that portion, this creates a “mixed-use” portion of the property.

  – The deduction basis generally relates to allowable expenses allocated to the work area (e.g., a percentage of electricity, rent, rates, maintenance, etc.). These deductions reduce your taxable income during the period you held the property.

  – When you sell, the CGT calculation looks at the gain on the portion of the property that relates to private use vs. non-private (business) use. SARS requires you to apportion the sale proceeds and base cost between the private residence portion and the business/work-use portion.

– How the exemption interacts with mixed-use

  – If a portion of the property was used for business/work-from-home and that portion was not exclusively for private residence, the sale proceeds and base cost allocated to the private residence portion can still qualify for the primary residence exemption.

  – The key question is: what portion of the property qualifies as a private residential use, and what portion was used for business? The more non-private use (e.g., a dedicated home office), the smaller the portion of the property that remains fully protected by the primary residence exemption.

  – In practice, this means you may need to prorate the exemption based on the proportion of the dwelling used privately as a residence, versus the proportion used for work. If 15% of your home was used as a home office, roughly 15% of the gain could be subject to CGT or require allocation, reducing the R2 million exemption proportionally for the non-private portion.

– Practical steps and considerations

  – Keep thorough records of:

    – The floor area used for the home office (square meters) and total floor area.

    – The period during which the space was used for work.

    – The specific expenses claimed against income (and how you apportioned them by area).

  – When selling, you’ll typically:

    – Determine the proportion of the dwelling used for private residence vs. work.

    – Apply that proportion to gains and to the primary residence exemption to ascertain how much CGT is payable.

  – It is common for tax practitioners to:

    – Use a reasonable, consistent method to apportion the space (e.g., by floor area or time-based use) and document it.

    – Reconcile the claimed deductions with the eventual CGT outcome, to ensure compliance with SARS rules.

– Recommendation

  – Given the potential for the exemption to be proportionately reduced when a portion of the home was used for business, and given the complexity of apportionment, consult a SA tax professional or SARS directly before selling.

  – Have a clear record of the home office area, usage period, and expenses claimed, so you can justify the apportionment used in any CGT calculation.