Tax season 2014: Are cellphone, IT costs tax deductible?

The 2014 Tax season starts today, 1 July. And many taxpayers ask the question ‘ are my cell phone, data, computer and information technology costs tax deductible?’

As times go by, the total cost of keeping a family connected is absorbing more and more of the monthly budget. On the other hand most employers expect their employees to be available per phone and online almost 24/7. So there is a conflict of interests.

Lesson 1 – Be very careful

Taxpayers are responsible for their tax returns, even if the return is prepared and submitted by a registered tax nerd.

If an expense is claimed on a tax return and subsequently disallowed by SARS a understatement penalty will be imposed, plus an interest charge.

One can no longer view claiming a tax deduction on the basis of ‘never a faint heart won fair lady.

Lesson 2 – Personal expenses of employed taxpayers

Here’s the sting. The tax system is specifically geared to discourage employed individual taxpayers from claiming business expenses on their tax returns (other than retirement fund contributions and medical expenses used in the calculation of the medical rebate).

Section 23 (m) of the income tax act prohibits the deduction of most expenses against employment income. The fact that an employee may have maintained records and incurred the expense solely or mainly in the course of employment is irrelevant. That’s totally unfair. But it’s the law.

In order to claim an expense in a personal tax return and get around section 23(m) the employee has to be in receipt of commission or trade income.

Section 23(m) does not apply to wear and tear allowances on computers paid for by staff.

Lesson 3 – If an employee has a business expense it must be reclaimed from the employer.

The tax system allows the employer to reimburse legitimate business expenses of the employee tax-free. But the paper work is a schlepp. 

Lesson 4 – There is a solution 

The tax act now allows the employer to provide employees with cellphones, data bundles and all other IT facilities without the employee being deemed to have received a fringe benefit. SARS accepts that if the employer is prepared to incur the expense, the private usage is incidental and does not have to be substantiated.

So the solution is simple:- tax efficiency is achieved by the employer incurring the expense and providing an IT bundle to the employee tax-free.

Lesson 5 – watch out for the HR director

The HR directors will hate the idea of providing employees with cellphones, data bundles and computers on a tax-free basis. They say this causes extra administration costs and risk to the employer.

The solution lies in the imaginative use of capping the cellphone time and data contracts. In this way the costs can be a fixed monthly charge.

Lesson 6 – look for the savings.

Tax saving achieved through an employer provided IT package is not the only issue. Look for the other savings:-

  • The employer can probably acquire the IT package far cheaper than the employee.
  • The employer can reclaim the VAT on the IT package as input tax, thus reducing the cost by a further 14%.

Conclusion

The fact that you cannot claim your  cellphone and IT  costs on your personal tax return really just means that your employment package is incorrectly structured. SARS cannot help you fix the problem. So take it up with your employer.

This article also appears on www.biznews.com


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