Page 391 - SAIT Compendium 2016 Volume2

IN 28 (2) Income Tax acT: InTeRPReTaTIon noTes IN 28 (2)
4.3 Requirements of section 11
It is not dif cult to show that a home of ce expense meets the requirements of section 11, provided the expense is not of a capital nature. Expenditure such as maintenance, rates and taxes and wear-and-tear on of ce equipment would usually satisfy the requirements of section 11. Section 11, in so far as it relates to home of ce expenses, draws no distinction between taxpayers in employment, taxpayers that are holding an of ce or other taxpayers.
4.4 Requirements of section 23(m)
Section 23(m) is applicable if the taxpayer is in receipt of remuneration derived from employment or the holding of an of ce, unless the remuneration is derived mainly from commission based on sales or turnover (for more details see Interpretation Note No. 13). Deductions available to the taxpayer are limited under section 23(m) to the deductions listed in this section. As far as home of ce expenses are concerned, the taxpayer will only be able to claim rental, repairs and expenses incurred in relation to a dwelling house or domestic premises under sections 11(a) and (d) and wear-and-tear allowances under section 11(e).
4.5 Requirements of section 23(b)
An expense must still meet the requirements of section 23(b) even though it meets the requirements of section 11 and is allowed under section 23(m). The requirements of section 23(b) are as follows:
• The part of the home in respect of which a claim is submitted must be occupied for purposes of a “trade”, as
de ned in section 1.
• The part that is so occupied must be speci cally equipped for purposes of the trade.
The Collins English Dictionary* de nes “speci c” to mean “relating to a speci ed or particular thing” and “equip” to mean “to furnish with”. The Concise Oxford English Dictionary† de nes “speci c” as “relating uniquely to a particular subject” and “equip” to mean “supply with the items needed for a particular purpose”. It is clear from these de nitions that, in order for a part of a private home to be considered “speci cally equipped” for the purposes of trade, that part must be tted with the instruments, tools and equipment required to conduct that trade. For example, taxpayers who meet clients at their homes would not be permitted a deduction under this head if they meet their clients in their dining or sitting rooms. A separate of ce would need to be equipped and maintained. An of ce that requires specialised equipment, such as a mechanic’s tools, an architect’s drawing board or a doctor’s examination room equipment, must be equipped with these items.
• The part must be regularly and exclusively used for purposes of the trade.
The Concise Oxford Dictionary‡ de nes “regularly” to mean “done or happening frequently” and “exclusively” to mean “excluding or not admitting other things; excluding all but what is speci ed”. It is not possible to de ne what would be acceptable to SARS as regular usage for the purposes of trade, as each case will have to be judged on its own merits. However, a home of ce that is maintained and is only used occasionally, for example, once on a weekend due to the taxpayer maintaining separate business premises, is not used frequently enough to constitute “regular” use. As regards the requirement of exclusivity, it is considered that this provision contemplates that the part used for trade may not be used for any other purpose other than the taxpayer’s trade. A deduction is not permitted where it is evident that the taxpayer conducts any activities of a private nature in the part used for trade, such as permitting children to use the room as a play room.
• If the trade is employment or the holding of an of ce –
- the income derived from this trade must be mainly (that is, must exceed 50% of total income from
employment or of ce) commission or other variable payments which are based on the taxpayer’s work performance, and the taxpayer’s duties were not performed mainly in an of ce provided by his or her employer; or
- the taxpayer’s duties must be performed mainly (more than 50%) in that part of the private premises occupied for purposes of trade.
Employees who do not earn commission but who spend the majority of their time on the road visiting clients perform their duties mainly at their clients’ premises and as a result they do not qualify for a deduction under section 23(b).
5. Conclusion
Annexure A contains two examples setting out how sections 23(b) and 23(m) interact. In the event that section 23(m) applies, and the requirements of section 23(b) are met, it effectively means that deductible home of ce expenses are limited to rental, repairs and expenses incurred in relation to a dwelling house or domestic premises under section 11(a) and (d) and wear-and-tear allowances under section 11(e) for items such as of ce equipment used by the taxpayer for the purpose of his or her trade (employment).
A decision chart, which will assist taxpayers in identifying when home of ce expenses may be deducted, is attached in Annexure B.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE Date of rst issue: 18 February 2005
Annexure A – Examples
* Collins English Dictionary. 3rd ed. Glasgow: Harper Collins, 1991. Print.
† Concise Oxford English Dictionary. Edited by Catherine Soanes, Angus Stevenson. 11th ed. rev. New York: Oxford University Press, 2006.
‡ Above.
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 383