With the tax season upon us and we ready ourselves to complete our tax returns ,the following article has raised an interesting and potentially costly implication for those who claim home office use on their tax returns,and then sell their primary residence.
Leigh, a taxpayer who anticipated a R20 000 refund from the South African Revenue Service (SARS), was instead faced with a R60 000 tax bill. The reason? SARS applied capital gains tax (CGT) on the sale of her home, citing her use of a portion of the property as a home office. This situation highlights the potential financial impact of the captial gains tax on unsuspecting homeowners. Additionally, understanding the implications of this captial gains tax is crucial for all property owners.
Understanding the Primary Residence Exclusion
Property owners should be aware of the potential consequences of the captial gains tax, especially when making decisions about their primary residence.
Ordinarily, the first R2 million of profit made on the sale of a primary residence is excluded from CGT. However, SARS rules stipulate that this exclusion does not apply for any portion of the property used as a home office or rented out.
Tshepo Thebyane, tax consultant at Tax Consulting SA, explains:
“The primary residence exclusion must be apportioned based on the period during which the property was used predominantly for domestic purposes relative to the total ownership period.”
This nuance, often overlooked by taxpayers, has gained new relevance since the rise of home-based work during and after the Covid-19 pandemic.
The SARS Calculation in Practice
In Leigh’s case, she had claimed R15 000 per month in home office expenses. When she sold her home for R425 000 more than its purchase price, SARS treated the full gain as taxable. The result: a taxable capital gain of R154 000, added to her income for that tax year.
This highlights the importance of careful tax planning – and seeking professional advice – before claiming home office deductions.
Defining Your Workspace
SARS assumes that the entire property is “tainted” unless the taxpayer can prove otherwise. To defend her position, Leigh had to provide evidence that the office space was:
- Clearly defined within the home,
- Used exclusively and regularly for business purposes, and
- Documented, including photographs of the room.
Factoring in Home Improvements
Leigh’s tax burden was compounded by another oversight: she did not submit proof of R173 000 spent on home improvements. According to paragraph 20 of the Eighth Schedule of the Income Tax Act, such costs can be added to the base cost of the property, reducing the overall taxable gain.
Had she included these expenses, her capital gain would have been reduced to R252 000, further mitigated by applying the “untainted” primary residence exclusion for periods of personal use.
Joint Ownership Considerations
Another mitigating factor often overlooked is joint ownership. As Thebyane notes, had Leigh correctly updated the SARS system to reflect that she and her husband co-owned the property, the taxable gain would have been split, further reducing her individual liability.
Key Takeaways for Taxpayers
- Be precise when claiming home office expenses. Clearly define the area and maintain documentation.
- Retain records of property improvements. These can significantly reduce your taxable gain.
- Consult a tax professional. The rules are complex, and missteps can prove costly.
- Review ownership structures. Joint ownership can affect the apportionment of gains.
For South Africans who continue to work from home, the message is clear: while home office claims may ease the monthly tax burden, they carry longer-term CGT implications that must not be ignored.
Source: Maya Fisher French | News 24 Business | September 2025
Disclaimer: This article is intended for general informational purposes only and does not constitute financial, tax, or legal advice. You should consult a qualified financial adviser before making any investment or retirement-related decisions