Calculating tax deductions

Whether you are an employee or business owner, there are certain ways to reduce your taxable income and tax bill, as well as increase the tax refund on your tax return by deducting legitimate expenses. Here are some tax deductions that you might not know about, and shouldn’t overlook.

Home Office Allowances 

The pandemic has triggered a huge shift towards working from home over the past year, and we can expect hybrid and remote working to remain a strong feature of the standard workforce even after the COVID crisis is over. 

The good news is that the National Treasury will review the current travel and home office, which will hopefully be adjusted to be more fair and simple in the years to come. While nothing has been formalised as yet, there are certain criteria that need to be met in order to claim home office allowances

Firstly, you are required to have a contract or supporting documentation from your employer that shows you are required to work and maintain an office at home. Secondly, you need to have a dedicated workspace or office that is equipped for the purposes of your job. Unfortunately, a kitchen counter wouldn’t suffice – it needs to be a work desk or office that has been set-up and used for a majority of the time. Only then can you claim the home office tax deduction of expenses you’ve incurred. 

Here are some examples of running costs associated with your workspace that you may be able to claim a tax deduction:

  • Rent or mortgage
  • Insurance
  • Rates and taxes 
  • Interest on mortgage bond
  • Depreciation on office equipment
  • Electricity and utilities 
  • Cleaning 
  • Maintenance (repairs – not cosmetic improvements)

It’s important to note that the amount has to be proportional to the space used. For example, you can’t claim all of your electricity expenses for the entire household. If your house is 100m2 and the office is 10m2, this means you can claim up to 10% of costs that are attributed to the entire home. You’ll need to have accurate records of these expenses to prove your claim.

Medical Tax Credits 

If you contribute to a recognised medical aid scheme, you qualify to get a medical tax credit every year. This amount is calculated on the number of dependants on your medical scheme, such as your spouse and children. There are also certain qualifying medical expenses you can claim, which are subject to limitations. This depends on your personal medical situation but is certainly something that your tax practitioner can look into to see what you would qualify for. 

Relocation Costs 

If an employee is obliged to transfer from their current location of employment to another, the employer would typically cover these costs, and a benefit or advantage accrues that is subject to tax. 

Example of these costs include: 

  • Bond registration and legal fees paid in respect of a new residence that has been purchased. 
  • Transfer duty paid in respect of the new residence.
  • Cancellation fees paid for bond cancellation on the previous residence. 
  • Agent’s commission paid on the sale of the previous residence.
  • New school uniforms.
  • Replacement of curtains. 
  • Motor vehicle registration fees.
  • Telephone, water and electricity connections.

Travel

If you travel in your vehicle for business purposes (for example going to and from a client’s office), and you haven’t been reimbursed for this by your employer or received a travel allowance, you could claim travel expenses. To claim travel expenses as a deduction, you need to keep an accurate, detailed logbook of all business-related travel and incurred maintenance expenses such as petrol, oil, service costs and insurance. Keep in mind that there are certain limitations for exceeding kilometers and prescribed rates, which your tax assistant can advise you on. 

In Closing 

At the end of the day, you needn’t worry too much about the tax rules – this is what we are here for.  Get expert advice from Fenns Incorporated tax consultants as you do your taxes, or we can do everything for you from start to finish to ensure you have peace of mind knowing that your tax return is done 100% correctly. Contact us today for tax services and assistance including preparation of corporate and individual tax returns, tax planning, donations tax, tax clearance certificates, value-added tax, and much more.