Working from home: Capital Gain rules

With COVID restricting travel and employees with logbooks not being able to travel for business purposes, and who are used to getting a refund might have to prepare to pay taxes in this year. Claiming home-office expenses now will result in a capital gain for the period you claimed.

Do not be terrified of the Capital Gain concept.

Let use an example with figures and taking the above 10%:
• House cost was: R2,000,000.
• House was sold for: R2,500,000.
• Gain = R500,000: 10% of this will be subject to Capital Gain rules.

If the house is co-owned, this gain is split

NOTE : We ONLY look at the GAIN on the property.

Therefore, after the split or in 1 person’s name, the following happens :
• Split: R500,000 ÷ 2 = R250,000.
• One-person owner = R500,000.
• After this the 10% applies.

The difference of R450,000 (R500,000 less 10%) gets taken out of the R2,000,000 LIFE-TIME PRIMARY RESIDENCE allowance.

This 10% gets reduced by R40,000 (annual exclusion for all individual taxpayers).

So, if the house was co-owned: (R250,000 x 10%) less the R40,000 exclusion = R0 for capital gain.

If the house is in one person’s name: (R500,000 x 10%) = R50,000 less R40,000 = R10,000.
R10,000 x 40% (inclusion rate to determine taxable portion) – this gives us R4,000.

So, should you claim home-office expenses in the current, or future, tax year this R4,000 will be added to your taxable income, when you are selling the property.

What does this mean?

This R4,000 + salary + other income, CAN still be reduced by normal tax-deductible expenses: logbooks, RA’s, Medical Aid and medical expenses (rules apply).

Tax Season 2021 and home-office expenses do not have to be a concern, but be cautious and aware regarding what the implications are. Sad that so many companies did not adjust their payroll structure – if you have a logbook, you most likely will have a tax liability.

– Salim Khan