Page 392 - SAIT Compendium 2016 Volume2

IN 28 (2) Income Tax acT: InTeRPReTaTIon noTes IN 28 (2)
Example 1 – Determination of home of ce deduction by an employee with income derived mainly from commission
Facts:
X is an employee who is in receipt of commission income of R50 000, a salary of R20 000 and a travel allowance of R3 000 a year. X is obliged in terms of his employment contract to work from home since his employer does not provide him with an of ce at work. He maintains a home of ce which he has speci cally set up for the purposes of his employment duties. The home of ce is used regularly and exclusively for the purposes of work. His duties are performed mainly in the home of ce. The total area (square metres [m2]) of the home study is 20 m2 in relation to the total area of his house which is 200 m2. The percentage area of the home of ce in relation to the total area of the house is 10% (20/200). He had purchased a computer for R12 000, an of ce desk for R2 000 and an of ce chair for R800 for the home of ce. The interest on his household bond amounts to R25 000 a year. The rates and taxes for the year
amount to R2 500. X contributes R5 000 a year to a pension fund and had also incurred commission-related business expenses of R9 000 consisting of cell phone expenses and stationery costs.
Result:
Since more than 50% of X's total income consists of commission, the restrictions imposed by section 23(m) will not apply. Furthermore, he maintains a home of ce which is regularly and exclusively used for the purposes of earning income. The home of ce has been speci cally equipped for the purposes of his trade and is mainly used by him to perform his duties. X can therefore claim a deduction for the following:
• Pension fund contributions of R5 000, subject to the limits imposed by section 11(k).
• Cell phone expenses and stationery expenses of R9 000.
• Wear-and-tear allowance under section 11(e) for the computer, of ce desk and of ce chair.
• Travel deduction.
• Interest on bond of R2 500*.
• Rates and taxes of R250*.
* 10% of the total area of the house relates to the home of ce. Therefore 10% of the interest on bond and rates and taxes will be allowed as a deduction.
Example 2 – Determination of a home of ce deduction by employee with income not derived mainly from commission
Facts:
Y is an employee, who is in receipt of a salary of R50 000, commission of R20 000 and a travel allowance of R3 000 a year. Y is obliged in terms of her employment contract to work from home since her employer does not provide her with an of ce at work. She maintains a home of ce which she has speci cally set up for the purposes of her employment duties. The home of ce is used regularly and exclusively for the purposes of work. Her duties are performed mainly in the home of ce. The total area (square metres) of the home study is 20 m2 in relation to the total area of her house which is 200 m2. The percentage area of the home of ce in relation to the total area of the house is 10% (20/200). She had purchased a computer for R12 000 and incurred computer repair costs of R2 000, an of ce desk for R2 000 and an of ce chair for R800 for the home of ce. The interest on her household bond amounts to R25 000 a year. The rates and taxes for the year are R2 500. The renovation costs amount to R5 000. Y contributes R5 000 a year to a pension fund and has also incurred commission-related business expenses of R9 000 consisting of cell phone expenses and stationery costs.
Result:
Since more than 50% of Y’s total income consists of a salary, the restrictions imposed by section 23(m) will apply. Although she meets the requirements of section 23(b), that is, she maintains a home of ce which is regularly and exclusively used for the purposes of earning income, the home of ce has been speci cally equipped and is mainly used for the purposes of her trade. Y will be limited under section 23(m) to the following deductions:
• Pension fund contributions of R5 000, subject to the limits imposed by section 11(k).
• Wear-and-tear allowance under section 11(e) for the computer, of ce desk and of ce chair. • Travel deduction.
• Interest on bonds of R2 500*.
• Rates and taxes of R250*.
• Renovation costs of R500*.
* 10% of the total area of the house relates to the home of ce. Therefore, 10% of the interest on bond, rates and taxes and renovation costs will be allowed as a deduction.
The following expenses will be disallowed under section 23(m): • Cell phone expenses and stationery costs of R9 000.
• Repair costs of computer of R2 000.
384 saIT comPendIum oF Tax LegIsLaTIon VoLume 2