Home Office - What monthly Expenses are Legally deductible and how is it determined?

[Constance]

We own a butchery, but the space of the premises is confined and we were forced to move to a bigger house to accommodate products being manufactured at home as the expansion for the premises may not be possible due to a huge Vodacom Tower erected at the rear the building.

The square meter of the house we are renting is 235m; the space we utilize for the business is 71.95m. I am aware of the Income Tax Act, 1962 Sections 11(a), 23(b) and (m), (filled with unnecessary jargon, if I may add) but not sure if it really applies to me.

The electricity consumption is as follows:5 -6 x 50watt fans (depending on the quantities that need to be prepared) and 1 x 25watt for drying biltong, etc. These fans are used for 24 hours 5 days a week.

We use the oven for preparing gammons and other meats at 3000watts, for 4 hours twice a week every week.

We also use the washing machine for staff uniforms, but I am not that concerned about this consumption, however, the others form a huge chunk of my expense.

How do I determine which portion of the electricity bill (for VAT purposes) is for business use every month, and how do I format this expense on paper for SARS. If you can provide some information or a link, it would be most appreciated.

We work 14-18 hours a day, eat at work and the only time we are at home is in the evenings and on a Sunday afternoon.

Any assistance with regard to this matter would be most appreciated.

[AndyD]

Maybe you could install an owl monitor on the higher consumption items. Otherwise it might be easier to just to portion a sensible figure for the residential consumption and just put the remainder through as business consumption.

[Constance]

Maybe you could install an owl monitor on the higher consumption items. Otherwise it might be easier to just to portion a sensible figure for the residential consumption and just put the remainder through as business consumption.

Thank you AndyD, most certainly will look into this!

[Constance]

This may benefit others that work from home or use part of their home for business purposes….

I have been up most of the night and finally discovered the answer, which I must add I completely missed the first few times!

Act 58 of 1960 (Note 28) Issue 2 of March 2011 (In plain English reflects):

Measure the entire area, and then determine the space used for business. It would look something like this:

Example

250 square meters (entire space) of which 50 square meters is for business.

Formula: (Rent or lease)*(times business space) / (divided by total area) =

i.e. R6000 * 50/250 = R1200.00 deductible from your rental for business

Now the beauty of this simple formula has an extended value, we can use this to determine the allowable deduction for electricity consumption.

Example

50 square meters divided by total area of 250 = 20%!

According to the Act that percentage used to determine space utilized for business purposes also applies to the deductible percentage for your utilities. So, if your total bill (including refuse and water) is R2000 for the month, then 20% of that account is legally deductible for office expenses.

NB: It does however become a little trickier if you feel you may be using more than that, like myself, but I will take …. Advice to implement a stricter and more controlled method to determine consumption.

Furthermore, this only applies to your electricity bill, (there are other bonuses as well) any appliance purchased for that office area is completely VAT deductible (if you have a valid Tax Invoice, not just an Invoice – there is a difference, if you want to stay within the realm of legality) and may then also be depreciated on your Income Tax over the stipulated time-frame set out by the Tax Law.

Did you know that you may deduct flowers and plants purchased for the office? It’s totally legal!

Hope this helps.

Should you have further information to add to this or even need to correct me with, please feel free to do so.