With the fast pace of life and congestion on the roads, more and more people are choosing to work from home.
If you're one of these, you can claim some of your home office expenses as a business tax deduction.
But unfortunately, this triggers another kind of tax: Capital Gains Tax (CGT).
And if you don't know what part of your home is subject to CGT in this situation, you could end up paying too much.
That's an expense you can't afford.
Thankfully, I'm going to tell you what part of your home is subject to CGT if you work from it...
Here's how Capital Gains Tax on your home office works
If you use a room in your home as an office, it doesn't form part of your primary residence anymore. This means you must include any gains or losses you make in your business tax return for CGT
And SARS will know if you're using your home office if you claim your home office expenses as business tax deductions.
That means part of your home becomes a business capital asset. And SARS can treat it like a business capital gain when you sell your home and make a profit.
So how do you work out the CGT
on your home office?
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Here's how to work out the Capital Gains Tax on your home office
First, you must work out what percentage of your home you use as your home office. To do this, look at the square metres in your home and then look at how many of those square metres you use for business.
Use that percentage to see how much of the profit you make on selling your home is subject to CGT
. To do this, multiply the percentage by the total profit you made.
So, let's say you use 20% of your home for business, and you sell your house and for a profit of R35 000.
20% x R350 000 = R7 000.
Therefore, R7 000 of your profit is subject to CGT
. Now to work out the final amount of this profit you must pay tax on, simply apply the business inclusion rate of 66.6%.
This means the final amount of money you must pay tax on is R4 662and you have to pay 18.6% of that as CGT
So your final CGT
liability is R867. 13.
But it's not just that part of your home that's subject to CGT
The assets in your home office are also subject to CGT
The assets you use in your home office such as a computer, printer and even the furniture are also subject to CGT
If you sell them, you must work out your profit and apply the 33.3% inclusion rate and 18.6% effective tax rate to these as well.
Now that you know what office assets are subject to CGT
, make sure you calculate and hand over your taxes correctly to avoid SARS penalties.