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

What is VAT and how does it work ?

A detailed explanation on the different types of VAT and their impact. We delve into when and how to claim as well as details for a valid tax invoice.


Types of VAT:

– Standard rate
– Zero-rated supplies
– Exempt


Standard Rate

VAT is calculated at 15% of the service or goods total and then added onto the service/goods total.

• Output VAT:

– When a company or an individual generates a sale or fee, it is considered Excluding VAT, and VAT is calculated on this revenue and then added onto it.
– The VAT Inclusive amount is considered, taxable goods – for VAT purposes. For INCOME TAX, the nett / Exclusive amount is recognised as revenue/sales/fees.
– This is the amount shown on the VAT201.
– Output VAT is what is owed to SARS.
– When the debtor/customer/client pays their account, you allocate the entire receipt against their account, BUT the VAT portion, belongs to SARS and is due to SARS from the moment the invoice amount becomes receivable.

• Input VAT:

– Input VAT is VAT payable to service providers and suppliers as part of their invoice total.
– Input VAT is calculated and claimed on the following :
• General expenses (with limitations)
• Capital goods purchased (with limitations)
– Therefore, when payment is made on an invoice (or at the till a shop or supermarket), the total amount paid, includes the VAT portion
– Input VAT is deducted from the Output VAT declared, in order to determine the final VAT balance owing to SARS

When are goods exempt from VAT and when are they zero-rated? Why are they zero-rated or exempt?

Both exempt and zero-rated items may have a 0% rate on your accounting software, but the difference needs to be understood. It is also important to know that just because the items are zero-rated or exempt from VAT, it does not mean the items are not taken into account for income tax.
Input VAT cannot be claimed on fuel or interest paid, but should these be business expenses, the expense can be claimed for income tax. Should a service or sale, to a foreign business be invoiced, there is no VAT being charged, but the income is taxable for income tax.


The most popular items are:

• Sales or services to foreign countries.
• Basic food items:

– Brown bread.
– Milk.
– Fresh paprika (dried paprika has VAT).
– Agricultural goods: maize, corn, dried mealies, etc.
– Fuel.

The idea behind basic food items not carrying VAT, is to make these items more affordable for households, with lower incomes. Farmers are also able to obtain/purchase seeds, etc at a zero rate.


Also at a rate of 0%, but consists of the following items:

• Finance services (excluding bank fees):

– Interest.
– Long-term insurance.

• 3rd party companies or individuals who earn commission on the sale of policies can register for VAT and will have to register for VAT if their revenue exceeds R1million.
• See Section 2(1) of the VAT Act

• School fees.
• Public transport.
• Residential accommodation.

– The landlord cannot charge VAT or claim VAT on services (commission to agents, repairs, etc.).– Needs to pay the VAT, but cannot claim it from SARS.

– This excludes B&B’s, hotels and other relevant accommodations, where the accommodation is a service and not for a primary residence.


Expense and capital items purchased:

When can and when can we not claim input VAT?

1) When the service provider / supplier is NOT registered for VAT.
2) When the service or goods is either :
i.  Zero-rated
ii. Exempt
3) When VAT is strictly not allowed :
– Petrol and diesel 
i. There are exceptions, but rule-of-thumb is NO VAT may be claimed.
 – Staff welfare and refreshments
i. Water for the water cooler
ii. Tea, coffee, milk, sugar, etc
iii. Fast foods when traveling
– Entertainment 
i. Taking clients or staff out or for office consumption
ii. The exceptions here are when the company/individual earns commission or is strictly in specific industries
– Goods purchased from foreign countries :
i. The exception :
There may be customs VAT on the invoice which is at a higher rate than 15%


Input VAT on Capital Goods: 

Capital goods are generally a single item with a value of over R7,500 (excl. VAT).
– Eg. Seven chairs at R1,500 each totals: R10,500. Individually, they are not considered.
They can still be shown on an asset register, but then fully written off.
Input VAT on capital goods is disclosed separately on the VAT201 and is added to the Input VAT as mentioned above.
When can Input VAT NOT be claimed on capital goods?
1) When the service provider / supplier is NOT registered for VAT.
2) Vehicles :
– Double cab bakkies
– 4-door passenger vehicles (with exceptions)
– Mini-busses (with exceptions)
These are the most common, general examples.


Information needed for valid invoice:

There is quite a bit of information needed, on an invoice, to make it a valid tax invoice. Without the below, your VAT claim will be dismissed and your VAT liability will increase:

1) Details for both supplier and purchases :
– Full company names (or an individual’s name and surname)
– Addresses
– VAT numbers
– Contact details are a bonus, but not a strict requirement.
2) Other details on the invoices :
– Date on which the invoice is issued
– Clearly be shown how the pricing is calculated
– Exclusive amount must be clearly stated
– VAT percentage and amount must be clearly shown
– Inclusive amount must be shown

3) Description of services / goods to be clearly shown as well as whether calculated price already Includes or excludes VAT. This relates to individual line-items and separate descriptions within the body of the invoice.

– Salim Khan

Taxation for Small Businesses

Small Business can be taxed at more favourable rates if they meet the specific requirements.


What are the requirements ?

  • Annual Turnover to be less than R20million.
  • Investment income must not exceed 20% of total income : This will include, but not limited to, rental income, interest & dividends, etc.
  • All shareholders are to be natural persons : No trusts nor any company to hold shares in the company.
  • Shareholders not to hold shares in any other companies (Private, Close Corporations, Personal Liability Companies) excluding Public Companies.
  • Directors are not be directors in any other business – The rules get quite sticky as it mentions that even if persons related to directors hold business interests, the company will be disqualified.
  • Personal services companies are disqualified as well : A personal services company gets taxed at 34% and is a company who received more than 80% of remuneration from one source.
  • Specific industries are also limited and can only start qualifying after having at least 3 employees, excluding the directors.

Although SARS does not ask all of these questions on the tax return; it should be abided by. Ok, so your company qualifies, what now? What tax benefits are there? The most important one, is that the company gets favourable tax rates, similar to individuals.

For the tax year 1 April 2023 to 31 March 2024, the tax rates are as follows:

  • R0 to R95,750 : Tax at 0%
  • R95,751 to R365,000 : Tax at 7% for the amount over R95,750 (meaning the first R95,750 of profit is tax-free and the profit to be taxed at 7% is calculated by deducting R95,750 from the profit.
  • R365,001 to R550,000 : Taxed at 21% on the amount over R365,000 plus R18,848 (which is the highest tax for the previous bracket)
  • R550,001 and above is taxed at 28% for the amount above R550,000 plus R57,698.
  • R550,001 and above is taxed at 28% for the amount above R550,000 plus R58,583.


Profit (taxable income if you want to be very specific) for the year : R400,000.

We will calculate the tax as follows : R400,000 less R365,000 = R35,000. This difference is then multiplied by the tax rate : R35,000 x 21% = R7,350, but we still have to add the maximum tax from the previous bracket to get our taxation payable. So, R7,350 + R18,848 = R26,198 will be our total tax payable on a profit of R400,000.

For the technical inclined: profit and taxable income are not always the same, as there could be expenditures which are allowed for accounting purposes, but not for taxation purposes. Example : SARS interest and penalties, fines, change in depreciation rates, etc.

Are there any other benefits?

Yes, there are. Mainly on the depreciation of assets. Consult with your accountant regarding the accounting implications as there might be a difference between you can claim for accounting purposes and for tax purposes.

A Small Business Corporation may choose to use the following rates for movable assets brought into use for the first time by the SBC:

  • Assets used directly in a process of manufacture or similar process: 100% of the cost in the year of assessment in which the asset is first brought into use.
  • Other qualifying assets: 50% of the cost in the year of assessment in which the asset is first brought into use, 30% in the first succeeding year, and 20% in the second succeeding year.

The Company (which includes Close Corporations and Personal Liability Companies) can also choose the normal rates (20% on machinery over 5years as an example).

– Salim Khan