Tax 101 in a COVID-19 world
It’s been a year of upheaval, not least of all for our work and finances. So how does COVID-19 impact your tax return? Find out from an expert.
I’ve been working from home. Can I claim tax back?
You could deduct home office expenses, say Nicci Courtney-Clarke, Head of Tax at TaxTim, but only on the following conditions:
- Your employer must allow you to work from home.
- You must spend more than half of your total working hours working from your home office.
- You must have an area of your home that is used exclusively for this purpose. “Employees who meet clients in their dining room at home would not qualify,” notes Courtney-Clarke. “A separate office, which is used specifically for your work, must be maintained to qualify for the deduction.”
- The office must be specifically equipped for your trade. “It must be specially fitted with the relevant instruments, tools and equipment required for you to perform your work,” she adds.
Even if these conditions are met, the period you work from home also impacts whether you can claim tax back. Courtney-Clarke explains: “Employees who normally work from their employer’s office, but who have been ‘locked-down’ working from home due to COVID-19, will only be able to claim a home office deduction if they end up working from home for more than six months of the tax year, and provided they have an area of their home exclusively used and set up for this purpose.”
So, in the case of lockdown, only if you have worked from home from, say, the start of April 2020 and continued until at least the end of September 2020, would you be able to claim back tax.
What tax deductions can I claim for?
“If you qualify to claim the deduction, you may claim ‘pro-rated deductions’ based on rent, interest on your mortgage bond, rates and taxes, and cleaning,” says Courtney-Clarke. “You may also claim wear and tear on office equipment and repairs to the office.”
How do I calculate my tax deductions?
Courtney-Clarke suggests the following two steps for accurately calculating and claiming back tax for working from home:
“Calculate the total square meterage of your home office in relation to the total square meterage of your house and convert this to a percentage.”
So: ([home office area]m2 ÷ [total house area]m2) x 100 = %
“Apply this percentage to the home office expenditure to calculate the portion that is deductible.”
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I’ve had to pause my retirement annuity contributions during these challenging times. How will this impact my tax return?
The sad news is that the tax savings on your contributions would only be limited to the contributions you’ve made. “You would only include the actual contributions made to retirement funds in your tax return,” says Courtney-Clarke.
Don’t have a retirement annuity? You’re missing out on some great tax benefits. Read this to find out 10 ways to save with this tax-efficient savings vehicle. Use this handy savings tool to find out how much you should put away each month to reach your retirement savings goal.
What is SARS’s auto-assessment?
First, a bit of background: SARS collects third-party data from different institutions (i.e. third-party data providers), such as:
• Financial institutions
• Medical schemes
• Retirement annuity (RA) fund administrators.
In August (the month before tax filing season officially opens for other filers, i.e. 1 September) SARS will automatically issue an assessment via SMS to certain taxpayers based on third-party data. “You can choose to accept the auto-assessment, which means you don’t need to file a tax return. Or you can reject it and opt to go through the normal process to file your tax return,” says Courtney-Clarke.
Should I accept the auto-assessment?
It could be tempting to tap ‘accept’, knowing you’ll save time normally spent on doing your tax return. But Courtney-Clarke cautions three points to consider before you do so:
- “There’s a chance that SARS does not receive all the third-party data (or the most up-to-date tax certificates) and therefore your assessment will be inaccurate, and you may even end up overpaying tax.” Examples include your IRP5 having been re-issued last-minute owing to a date or source code error, or SARS not having received your RA certificate.
- “You could miss out on claiming some deductions that SARS won’t include on your auto-assessment, for example, home office, wear-and-tear and donations.”
- “SARS won’t know about any additional income you may have earned, so the income on your auto-assessment will be understated and inaccurate.” This includes things like freelance income or foreign income.
Have you skipped a tax return or two in the past? As much as you may think you’re saving time, you could actually be missing out on some financial benefits. Click here to find out what they are.
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