Abstract

Keywords

Home office deduction; section 23(b); exclusively used; de minimis non curat lex.

……………………………………………………….

1 Introduction

When and where taxpayers work has changed across many economic sectors and job levels. 1

* Petra Claassen. MAcc (Taxation). CA(SA). Lecturer, Faculty of Economic and Management Sciences, Stellenbosch University, South Africa. Email: petraw@sun.ac.za. ORCiD: https://orcid.org/0000-0002-3635-1342.

1 SAICA National Tax Committee 2021 https://saicawebprstorage.blob.core. windows.net/uploads/resources/SAICA_2021_Annexure_C_submission.pdf 11.

Section 23(b) of the Income Tax Act 58 of 1962 (hereafter 1962 ITA) 4

4 All section references are to the Income Tax Act 58 of 1962 (1962 ITA) unless stated otherwise.

…the part used for trade may not be used for any purpose other than the taxpayer's trade. A deduction is not permitted if the taxpayer or any other person conducts any activities that are not part of the taxpayer's trade (for example, activities of a private nature) in the part used for trade. For this reason, even though a part of a room constitutes a part of a premises, it is submitted that taxpayers will have great difficulty satisfying the burden of proof that the part was used exclusively for purposes of trade, if the part does not constitute a separate room in the premises. For example, if the part of the room is within a room that would normally be used for private activities, practically it will be significantly more difficult for a taxpayer to provide evidence proving exclusive use, that is, no non-trade use during or outside of work hours, throughout the relevant period. There may be exceptional cases, for example, a separate room in which two taxpayers have separate,

not shared, space specifically equipped for their trade, in which the burden of proof, depending on the facts, could be met. 6

6 SARS 2022 https://www.sars.gov.za/wp-content/uploads/Legal/Notes/LAPD-IntR-IN-2012-28-Home-Office-Expenses-Deductions.pdf 7-8. Interpretation notes provide guidance on how the CSARS interprets and applies legislation (SARS date unknown https://www.sars.gov.za/legal-counsel/interpretation-rulings/interpretation-notes). Note that our courts must interpret the meaning of statutory provisions in accordance with constitutionally compliant precepts and therefore objectively and independently of interpretation notes issued by SARS (Marshall v CSARS 2019 6 SA 246 (CC) paras 3-10).

The exclusive-use requirement is a tough hurdle to clear. 7

7 Visser 2022 https://www.moonstone.co.za/failure-to-update-tax-law-is-bad-news-for-employees-trying-to-claim-home-office-expenses/.

Since remote and hybrid working arrangements are expected to last beyond the Covid-19 pandemic, calls have been issued by some to relax the exclusive-use requirement through legislative amendment to enable a more equitable tax regime. 10

10 SAICA National Tax Committee 2021 https://saicawebprstorage.blob.core. windows.net/uploads/resources/SAICA_2021_Annexure_C_submission.pdf 11.

While taxpayers wait on National Treasury to publish discussion papers in respect of proposed legislative amendments that may never materialise, this article seeks to determine whether section 23(b), as it stands, is open to being interpreted in a manner that would entitle more taxpayers to claim

a home office tax deduction. In part 3.1 this article discusses the meaning of "part" of a premises in the context of the exclusive-use requirement. Part 3.2 seeks to answer the question as to whether "any" private use is fatal to the home office deduction. Part 3.3 briefly considers the South African Institute of Taxation's (SAIT's) proposal that the exclusive-use requirement be tied to working hours through an interpretative argument. Lastly, part 3.4 offers some thoughts on the South African Institute of Chartered Accountants' (SAICA's) submission, which advocates the removal of the exclusive-use requirement through legislative amendment.

2 Method

This is a doctrinal study. Legal doctrine is a mainly hermeneutical discipline in which legal scholars interpret texts and argue about the choice between different constructions thereof. 14

14 Van Hoecke "Legal Doctrine" 4.

"Statutory interpretation is a process of the mind, not the application of a yardstick." 18

18 Mullins 2003 J Legis 5, 37.

Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or

unbusinesslike results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation. 20

20 Endumeni para 18.

In paragraph 18 of Endumeni, interpretation is described as an "objective" process which means that the interpreter should not seek to ascertain the unwritten "intention of the legislature", that is not apparent when the words in the statute are read in context. 21

21 Wallis 2019 PELJ 15.

Section 39(2) of the Constitution of the Republic of South Africa, 1996 (hereafter the Constitution), 24

24 Which states that: "[w]hen interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights." See Moosa 2018 Revenue LJ 1-25 for a discussion on the impact of s 39(2) of the Constitution on the interpretation of tax legislation. S 39(2) implies that the meaning given to a provision must (where possible) advance at least one identifiable value in the Bill of Rights and that the text must be reasonably capable of bearing that meaning (Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism 2004 7 BCLR 687 (CC) para 72). See Le Roux 2006 SA Public Law 382-401 for a discussion of the textual threshold.

In his commentary on Endumeni, Wallis 28

28 Wallis 2019 PELJ 14.

3 Interpreting section 23(b)

Section 23(b) provides that no deductions shall be granted in respect of:

domestic or private expenses, including the rent or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling-house or domestic premises except in respect of such part as may be occupied for the purposes of trade: Provided that—

(a) any such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for the purposes of the taxpayer's trade and regularly and exclusively used for such purposes; and

(b) no deduction shall in any event be granted where the taxpayer's trade constitutes any employment or office unless—

(i) his income from such employment or office is derived mainly from commission or other variable payments which are based on the taxpayer's work performance and his duties are mainly performed otherwise than in an office which is provided to him by his employer; or

(ii) his duties are mainly performed in such part;

3.1 The meaning of "part" of a premises in the context of the exclusive-use requirement

In a now withdrawn interpretation note, SARS 29

29 See SARS 2011 https://www.sars.gov.za/wp-content/uploads/Legal/Archive/ Notes/LAPD-IntR-IN-Arc-2022-01-IN-28-Issue2-Home-Office-Expenses-Deductions-Archived-4-March-2022.pdf.

claims that an interpretation that the words "such part" mean a specific room incorrectly reflects the law.

In the most recent issue of Interpretation Note 28, SARS 32

32 SARS 2022 https://www.sars.gov.za/wp-content/uploads/Legal/Notes/LAPD-IntR-IN-2012-28-Home-Office-Expenses-Deductions.pdf 7.

Interpretation notes are, of course, not law, but they are helpful resources that set out SARS' interpretation of provisions. 35

35 Mazansky 2021 The Taxpayer 44.

As highlighted above, the historical debate about the true meaning of the word "part" of a premises has centred on two possible interpretations. The first is that in the context of section 23(b) "part" of a premises means a "room". The second is that "part" means any portion (alternatively segment or piece) of a premises, irrespective of whether the said portion also constitutes a "room".

The ordinary meaning of "part" is:

[a] piece or section of something which together with another or others makes up the whole (whether actually separate from the rest or not); an amount, but not all, of a thing or a number of things (material or immaterial); any of the smaller things into which a thing is or may be divided (in reality or notionally); a portion, segment, constituent, fraction. 36

36 OED Online 2023 https://www.oed.com/dictionary/part_n1?tab=meaning_ and_use#32048550.

The ordinary meaning of "room" is:

(i) [a] compartment within a building enclosed by walls or partitions, floor and ceiling, esp. (frequently with distinguishing word) one set aside for a specified purpose ... 37

37 OED Online 2023 https://www.oed.com/dictionary/room_n1?tab=meaning_and_ use#177416005.

(ii) one of the separate sections or part of the inside of a building. Rooms have their own walls, ceilings, floors, and doors, and are usually used for particular activities. 38

38 CED 2023 Online https://www.collinsdictionary.com/dictionary/english/room.

Based on the ordinary meaning of the word "part", a "room" (being an enclosed space with its own walls, ceiling, floor and door) is certainly a "part" of a premises, but so is a portion or segment of a room. While a "room" constitutes "part" of a premises, a "part" of a premises does not necessarily constitute a "room". The question is whether the exclusive-use requirement in section 23(b) requires that the word "part" be given the narrower meaning of "room".

In a decision by a United States (US) tax court, 39

39 Weightman v Commissioner 42 TCM (CCH) 104 (1981) (hereafter Weightman). Note that s 39(2) of the Constitution neither compels nor prohibits South African courts from considering foreign case law. Para 18 of the Endumeni case directs the interpreter to adopt a contextual approach to statutory interpretation, perhaps "comparative interpretation" is therefore better described as "transnational contextualisation". Comparative interpretation is appropriate when the domestic statute is based on a foreign statute or when their provisions have similar wording (Moosa 2018 Revenue LJ fn 170). See fn. 44 for a comparison of the wording of the US and South African statutes.

use requirement in section 280A 44

44 Section 280A(a) of the Internal Revenue Code of 1986 (the IRC) contains a general rule prohibiting the deduction of expenses in connection with the use of a dwelling unit which the taxpayer uses as a residence during the taxable year. Section 280A(c) of the IRC provides for exceptions to the general rule and reads as follows: "Exceptions for certain business or rental use; limitation on deductions for such use. (1) Certain business use. — Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis — (A) as the principal place of business for any trade or business of the taxpayer, (B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or (C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business."

The structure and wording of s 280A of the IRC and s 23(b) of the 1962 ITA are similar. Both contain a general prohibition in respect of the deductibility of expenses in connection with a dwelling occupied as a residence (domestic premises), followed by an exception that effectively allows the deduction of expenses in respect of a part (portion) of the premises used for trade purposes if the restrictive qualifying criteria are satisfied. In both sections, one of the restrictions is that the relevant "part" or "portion" must be "exclusively used" for the purposes of the taxpayer's trade.

The Commissioner had argued that the exclusive-use criterion was not satisfied because the taxpayer's home office: "was not an entire room or some portion or area of a room physically separated in some manner from the rest of the bedroom." 46

46 Weightman 107.

The US tax court expressed an appreciation for the fact that Congress intended section 280A of the IRC to provide "definitive rules" regarding the deductibility for home office deductions, wishing to "alleviate the administrative burdens, uncertainties, and potential for abuse that existed under the prior case law in regard to offices in the home". 49

49 Weightman 108.

of "a portion of a dwelling unit" would resurrect past uncertainties and abuse. 50

50 Weightman 108.

We think the issue is merely a question of fact. The problems of proof are essentially the same whether the Court is asked to determine the exclusive use of an entire room for business purposes or the exclusive use of a portion of that room for business purposes. The Court must resolve any issues of credibility and make its own factual determination based upon all the evidence in the record. The presence or absence of a wall, partition, curtain, or some other physical barrier separating the two areas is a factor for the Court to weigh. Absent a wall, partition, curtain, or other physical demarcation of the business area, the Court as the trier of fact may well view with a somewhat more critical eye the evidence adduced by the taxpayer to establish that there was in fact some separate, though, unmarked, area that he used exclusively and on a regular basis as his home office. Here the Court, having had the opportunity to observe the demeanour of the taxpayer, finds the taxpayer's testimony credible and is convinced that there was a separate area or portion of his bedroom that was used exclusively as his home office. This case is distinguishable on its facts from a situation where the taxpayer's business use and personal use of a single room are so intermingled that the Court cannot make the necessary finding of fact that a specific portion of the room was used exclusively and regularly for business purposes. 51

51 Weightman 108.

Section 23(b)'s legislative history may be consulted as a source of relevant context to determine the proper construction of the word "part". 52

52 See the discussion in fn 23.

Income tax was first introduced in South Africa through the enactment of the Income Tax Act 28 of 1914 (hereafter the 1914 ITA), which was based on the Land and Income Tax Assessment Act of 1895 (hereafter the LITAA) of New South Wales. 54

54 Croome Tax Law 6.

then as section 12(b) of the Income Tax Act 31 of 1941 (hereafter the 1941 ITA), and finally as section 23(b) of the 1962 ITA. 56

56 See Swart 1995 THRHR 653. The exact wording of the earlier versions of s 23(b) is provided in Appendix A.

When the Van Der Walt case 57

57 KBI v Van Der Walt 1986 4 All SA 421 (T) (hereafter Van Der Walt).

The court held that section 23(g) did not qualify section 23(b) because section 23(b) inherently contemplated the absence of exclusivity. 60

60 Van der Walt 426.

The Commissioner's loss in the Van Der Walt case probably led to section 23(b)'s amendment through the insertion of proviso (a) in 1991. The newly introduced requirements in proviso (a) were that the part occupied for trade purposes must be specifically equipped for that purpose and must be

regularly and exclusively used for that purpose. 65

65 RSA 1991 https://osall.org.za/docs/2011/02/1991-IT-Bill.pdf cl 23. Note that the SCA has referred to explanatory memoranda to trace the legislative history of a statutory provision; see for example United Manganese para 22.

A further amendment, the insertion of proviso (b)(i)), was made in 1993 because many taxpayers were reported to have invoked section 23(b) in claiming expenditure in respect of home offices which were occasionally used for trade purposes as a matter of personal convenience. 68

68 RSA 1993 https://osall.org.za/docs/2011/02/1993-IT-Bill.pdf cl 18.

Yet another amendment followed in 1994, extending the home office deduction to employees who received only salaries and no variable payments but worked mainly from a home office. 71

71 RSA 1994 https://osall.org.za/docs/2011/02/1994-IT-Bill.pdf cl 15.

It is submitted that the background to and purpose of the legislative amendments discussed above provide the necessary context to appreciate the significance of the insertion of the exclusive-use requirement and the retention of the word "part" in the text of section 23(b). If one accepts that a part of a room and an entire room are intrinsically equally capable of being used exclusively for trade, it is submitted that the enactment of the exclusive-use requirement provides no basis for giving

the word "part" the more restrictive meaning of "room". It is further submitted that the taxpayer's burden of proving that any part of his premises was exclusively used for trade purposes does not qualify the meaning of the word "part". The proper interpretation of the meaning of the word "part" in section 23(b) is a matter of law, not of fact. Nevertheless, the point made by the US tax court warrants repeating:

[t]he problems of proof are essentially the same whether the Court is asked to determine the exclusive use of an entire room for business purposes or the exclusive use of a portion of that room for business purposes. 72

72 Weightman 108.

Section 23(b) reinforces a basic tenet of South African income tax law, namely that trade expenditure incurred in the production of income is deductible, while expenditure of a private nature is not. 73

73 See ss 11(a), 23(a), 23(b) and 23(g).

It is submitted, that on a proper interpretation, even of section 23(b) in its current form, taxpayers need not set aside an entire room to claim a deduction for home office expenditure. The requirement is only that the "part" of the premises that is occupied for trade purposes must be exclusively used for such purposes. The said "part" must be separately identifiable to prevent a situation where a taxpayer's domestic and trade use are so intermingled that it becomes impossible to meet the exclusive-use requirement.

3.2 Is "any" private use fatal to the home office deduction? Invoking the de minimis non curat lex rule in the context of the exclusive-use requirement

The ordinary meaning of "exclusively" is: "[s]o as to exclude all except some particular object, subject, etc.; solely". 77

77 OED Online 2023 https://www.oed.com/dictionary/exclusively_adv? tab=meaning_and_use#4967480.

The term "exclusively used", as it appears in section 280A of the IRC, suggests that even incidental personal use is prohibited, an interpretation that finds support in the legislative history of the provision. 79

79 Holtschneider 1985 U Balt L Rev 528.

the phrase ‘exclusive use’ is susceptible to two interpretations: (1) a restrictive meaning, which requires use for one purpose and prohibiting all others, and (2) a liberal meaning, which requires only that it be used primarily or substantially for the intended purpose. 82

82 Goff 1978 Gonz L Rev 502.

He argues that the restrictive interpretation of the exclusive-use requirement put forth in the Senate Report (that is, prohibiting all private use) ought to be discarded in favour of a more liberal approach that accommodates what he calls "practical realities". 83

83 Goff 1978 Gonz L Rev 502-505.

calls in either type of office. 85

85 Holtschneider 1985 U Balt L Rev 529.

There is no evidence that the US tax court has equated "exclusively" with "primarily" or "substantially". It has, however, dismissed de minimis personal use in limited circumstances. For example, walking through the portion of the dwelling that is occupied for trade purposes to reach another portion of the dwelling (that is, "non-business passage") was held not to violate the exclusive-use requirement. 87

87 See Lind v CIR 50 TCM (CCH) 1096 (hereafter Lind); Hughes v CIR 41 TCM (CCH) 1153 (hereafter Hughes); Rayden v CIR 101 TCM (CCH) 1001 (hereafter Rayden).

However, carrying out normal household activities in the portion of the dwelling that is purported to be occupied for trade purposes was held to violate the exclusive-use requirement. 88

88 Rayden; Tilman v United States 644 F Supp 2nd 391 (SDNY 2009).

It is unclear why "non-business passage" is dismissed as de minimis but other activities of a personal nature are not. The frequency of personal use is seemingly not the deciding factor because passing through a home office space to access a bathroom surely happens multiple times every day and, therefore, more often than a visiting family member who sleeps on a couch in the home office for a few nights a year. Allowing taxpayers to invoke the de minimis rule in the context of the exclusive-use requirement, therefore, creates the problem of defining the parameters of what is truly de minimis personal use versus what is not.

In the United Kingdom case Sienkiewicz v Greif (UK) Ltd, 89

89 Sienkiewicz v Greif (UK) Ltd 2011 UKSC 10 para 108.

I doubt whether it is ever possible to define, in quantitative terms, what for the purposes of the application of any principle of law is de minimis. This must be a question for the judge on the facts of the particular case.

The inherent subjectivity involved in deciding whether a matter is de minimis (trivial) 90

90 Gooden and Thaldar 2022 PELJ 10.

We now return to Goff's proposition 91

91 Goff 1978 Gonz L Rev 502.

i. "exclusively" for trade purposes, all private use is prohibited;

ii. "primarily" for trade purposes, private use is permitted with the caveat that trade use must be the greater of the two. In this context, "primarily" could potentially be equated to "mainly", which has been

held to be a quantitative measure of more than 50%. 95

95 See SBI v Lourens Erasmus (Eiendoms) Bpk 1966 4 SA 434 (A) 445, where the word "mainly" was held to mean more than 50% in the context of s 51(f) of the 1941 ITA. Also see SARS 2022 https://www.sars.gov.za/wp-content/uploads/ Legal/Notes/LAPD-IntR-IN-2012-28-Home-Office-Expenses-Deductions.pdf 10, where SARS asserts that "mainly" also means more than fifty per cent in the context of proviso (b) to s 23(b).

iii. "substantially" for trade purposes, private use is permitted with the caveat that the trade use must be significant or considerable. There must be a great degree of trade use, but it need not necessarily be the main form of use. For example, if trade use is 40% of total use, that is arguably still significant or considerable trade use.

The word "exclusively" is used in proviso (a), and the word "mainly" is used twice in proviso (b) to section 23(b). The presumption that statute law is not invalid or purposeless expresses the idea that statutes are meant to be of effect. 96

96 Du Plessis Re-Interpretation of Statutes 187. This presumption is consonant with para 18 of Endumeni, that directs the interpreter to have regard to the purpose of a provision.

inconsequential private use, such as, for example, answering a private telephone call in the home office whilst working, or walking through the home office after work to an outside patio, will not render the use to be not exclusively for purposes of trade.

Given that there are no qualifications or exemptions to the exclusive-use requirement in the text, is the potential use of the de minimis rule justified? As a principle of legal policy the maxim de minimis non curat lex (the de minimis rule) provides that the law does not concern itself with trifles. 99

99 Claassen Claassen's Dictionary of Legal Words and Phrases (online).

Kgogong 102

102 S v Kgogong 1980 3 SA 600 (AD) 603-604.

In respect of statutory offences the purpose of the legislation must be considered, and the de minimis rule cannot be invoked if its application is contrary to the intention of the legislature, irrespective of the seriousness of the contravention. 103

103 DPP (EC) v Klue 2003 1 SACR 389 (E) para 13 (hereafter Klue).

We are not presently dealing with criminal law or a statutory offence as such, however:

[t]he general principle of legal policy that the law does not concern itself with trifles applies to statutory construction as to other legal contexts … The principle is essential to the working of any legal system by helping to discourage unnecessary litigation, to reduce time and cost and to preserve the dignity of the law … In a case where there is a departure from a rule and the departure is truly de minimis, the rule is still considered to have been complied with. 107

107 Bennion, Bailey and Norbury Bennion, Bailey and Norbury on Statutory Interpretation §9.4.

If one accepts that word "exclusively" in the context of s 23(b) bears its ordinary meaning of "solely", whilst being appreciative of the fact that there are no statutory exemptions to the exclusive-use requirement, no private use of the part the taxpayer occupies for trade purposes is allowed. As a principle of legal policy, however, private use may be disregarded if it is so insignificant as not to matter. Consequently, it is submitted that to invoke the de minimis rule is not to deny that "exclusively" means "solely", but rather to acknowledge that where a taxpayer has not fully complied with the exclusive-use requirement, but his private use is trivial, the taxpayer

must be considered as having complied with it. It is submitted that applying the de minimis rule is, therefore, different from claiming that "exclusively" means "primarily" or "substantially". The de minimis rule is invoked only after the meaning of "exclusively" has already been decided and not to determine the meaning thereof.

The purpose of section 23(b) is to allow the deduction of home office expenditure in the prescribed circumstances. The provisos to section 23(b) prescribe those circumstances, and their purpose is to prevent taxpayers from disguising non-deductible private expenditure as deductible trade expenditure. Denying home office deductions on account of private use that is truly insignificant is not required for section 23(b) to be effective, that is, for its purpose to be achieved and, therefore, there appears to be little reason to reject the application of the de minimis rule.

"What is relatively small within the context of the matter in question will not be dismissed as de minimis if it nevertheless has some real substance." 108

108 Bennion, Bailey and Norbury Bennion, Bailey and Norbury on Statutory Interpretation §9.4.

In conclusion, the exclusive-use requirement in section 23(b) prohibits the part of the premises that is occupied for trade purposes from being used for private purposes. No exemptions to the exclusive-use requirement have been carved out in the text. The de minimis rule could potentially be applied to disregard private use that has no real substance (that is, is truly insignificant) with the effect that the exclusive-use requirement is still considered to have been complied with. Foreign courts have, for example, in the instances discussed above, disregarded non-business passage through the part occupied for trade purposes as de minimis. Nevertheless, the scope for applying the de minimis rule seems rather limited. In cases where normal household activities were carried out in the home office space, foreign courts have refused to dismiss such activities as de minimis private use.

The application of the de minimis rule, therefore, offers no solution for taxpayers who live in homes with modest dimensions and who must, out of necessity, share their working spaces with other family members or whose working spaces are multi-functional in the sense they are also used for private household activities. It appears that if a solution is to be found to the problems faced by such taxpayers, it must be through legislative

amendment, not through interpretation. As things stand, absent the application of the de minimis rule, any private use of the part of the home office space is fatal to the home office deduction.

3.3 Can the exclusive-use requirement be tied to working hours by means of an interpretative argument?

In a submission to SARS the SAIT 110

110 SAIT 2021 https://cdn.ymaws.com/www.thesait.org.za/resource/resmgr/2021_ technical/sars_submissions_/draft_interpretation_note_28.pdf 3.1.

SARS' interpretation of the exclusive-use requirement gives the impression that the state is seemingly trying to discourage taxpayers from utilising the home office deduction. 112

112 SAIT 2021 https://cdn.ymaws.com/www.thesait.org.za/resource/resmgr/2021_ technical/sars_submissions_/draft_interpretation_note_28.pdf 3.1.

It is difficult to find support for SAIT's proposed interpretation in the wording of section 23(b). The text makes no distinction between different periods of use and there are no qualifications of the exclusive-use requirement of any kind. Section 23(b)'s legislative history 115

115 Refer to the discussion of s 23(b)'s legislative history in part 3.1 above.

outcome. Words can be read into the text but only when necessary to give effect to the provision 116

116 Medox Ltd v CSARS 2015 6 SA 310 (SCA) para 16.

Considering the changes that the Constitution has wrought in the field of statutory interpretation, Du Plessis 119

119 Du Plessis Re-Interpretation of Statutes 256.

If efforts to lobby the National Treasury to relax the statutory requirements for deductibility are unsuccessful, it may be possible to force change by directly challenging the constitutionality of section 23(b) in a court of law. None of SAIT's arguments about "equity in application" are directly linked to the constitutional value of equality, but that is not to say one could not argue the point. 121

121 See for example Swart 1995 THRHR 633-661 for a discussion of the discriminatory effect of s 23(b). Swart argues that the provisos to s 23(b) are arbitrary, unfair and based on irrational considerations opening them up to a constitutional challenge as they limit taxpayers’ right to equality in a manner which is not reasonable and justifiable in an open and democratic society based on human dignity, freedom and equality.

3.4 Some thoughts on the proposed removal of the exclusive-use requirement through legislative amendment

In its Annexure C submission, SAICA 122

122 SAICA National Tax Committee 2021 https://saicawebprstorage.blob.core. windows.net/uploads/resources/SAICA_2021_Annexure_C_submission.pdf 12.

"mainly used". In this context, "mainly used" is intended to be interpreted as more than 50% of the time. 123

123 SAICA National Tax Committee 2021 https://saicawebprstorage.blob.core. windows.net/uploads/resources/SAICA_2021_Annexure_C_submission.pdf 12.

Even though the removal of the exclusive-use requirement could theoretically result in improved "equity in application" because more taxpayers could theoretically qualify to claim a deduction under section 23(b), the amendment may come at the cost of increased complexity and substantiation requirements. Therefore, even though the proposed amendment is intended to broaden access to the section 23(b) deduction, increased complexity and substantiation requirements might result in even fewer taxpayers successfully claiming a home office deduction. That is not to say that the proposed amendment is without merit and that attempts should not be made to broaden access to the tax deduction for home office expenditure; only that thought should be given to the practical realities of the proposal to determine whether it will achieve its desired objective. Tax policy decisions always involve trade-offs, and which policy objectives will be prioritised when National Treasury concludes its multi-year project to review the tax provisions that impact on work-from-home arrangements remains to be seen.

4 Conclusion

The exclusive-use requirement in section 23(b) is an obstacle for many taxpayers who seek to claim a tax deduction for home office expenditure. To date, tax policy commentators have been unsuccessful in their attempts to lobby government to relax the requirements of section 23(b) through legislative amendment. Absent legislative amendments, taxpayers have

little choice but to attempt to rely on interpretative arguments in contesting assessments. Section 23(b) prohibits the deduction of private or domestic expenditure incurred in connection with any premises not occupied for trade purposes, except in respect of such a part as may be occupied for trade purposes. To qualify for deduction, however, the said part must be exclusively used for trade purposes in addition to other requirements. However, SARS has been inconsistent in its interpretation of the meaning of such a "part". SARS sometimes equates "part" to "room" and at other times acknowledges that "part" does not mean "room", but then it also belabours the point that taxpayers will struggle to discharge their burden of proving that the "part" was exclusively used for trade purposes if the said "part" does not constitute a "room". One might be excused for wondering if SARS is actively trying to discourage taxpayers from claiming tax deductions for home office expenditures. This article presents evidence that US taxpayers have been able to prove exclusive trade use even in those instances where their home offices were not separate rooms or physically separated portions of rooms. An entire room and a part of a room are intrinsically equally capable of being used exclusively for trade purposes, and in both cases the burden of proof is essentially the same. Upon considering the ordinary meaning of the word "part", section 23(b)'s legislative history and its purpose, this article argues that the exclusive-use requirement in section 23(b) does not compel the meaning of "part" to be restricted to the narrower meaning of "room".

Although some authors writing in the context of IRC have suggested that the word "exclusively" can bear a meaning akin to "primarily" or "substantially", this article argues that such a so-called liberal interpretation of the word is not available in the context of section 23(b). Indeed, no evidence has been found that the US tax courts have ever accepted and applied such a liberal interpretation in the context of the IRC. "Exclusively" means "solely", and therefore, private use is fatal to the home office tax deduction. The US tax courts have dismissed de minimis private use in very limited circumstances. The de minimis rule also forms part of South African law, and there appears to be little reason why South African courts should refuse to apply it in the context of the exclusive-use requirement in section 23(b). In cases where a court finds private use to be truly de minimis, the taxpayer will be considered to have complied with the exclusive-use requirement. Unfortunately for taxpayers, US case law offers non-business passage as the only example of private use that has been dismissed as de minimis, and South African courts might be equally conservative in their application of the rule. The potential application of the de minimis rule also introduces new uncertainties because what constitutes de minimis private use is seemingly incapable of precise definition and depends on the facts of the case.

This article has also briefly considered the possibility of tying the exclusive-use requirement to working hours by means of an interpretative argument. Section 23(b) does not distinguish between different periods of use, and the exclusive-use requirement has not been qualified in any way. It is submitted that reading the proposed working-hour qualification is to cross the divide between interpreting the statute and re-drafting it.

Lastly, this article argues that removing the exclusive-use requirement entirely would not necessarily have the desired effect of broadening access to the home office tax deduction because such an amendment may come at the cost of increased complexity and substantiation requirements. What is clear is that interpretative arguments alone are not the solution to the problems posed by the exclusive-use requirement. The policy changes that taxpayers and tax policy commentators have called for are best effected through legislative amendments. One can only hope that National Treasury will heed their call for a more equitable regime that is sensitive to the realities of the modern work environment.

Appendix A

Section 29(viii) of the LITAA

No deduction shall, in any case, be made in respect of any of the following matters: — … Nor, as regards income derived from any profession, trade, employment, or vocation, in respect of any of the following matters, viz: — … (vii) The rent of value of or cost of repairs or alterations of any premises not occupied for the purposes of the profession, trade employment or vocation, or of any dwelling-house, or domestic premises, except such part thereof as may be occupied for said purposes …

Section 15(2)(b) of the 1914 ITA

No deduction shall, as regards to income derived from any trade, be made in respect of any of the following matters: — … (b) the rent or value or cost of repairs or alterations of any premises not occupied for the purposes of the trade, or of any dwelling house or domestic premises, except such part thereof as may be occupied for those purposes …

Section 21(2)(c) of the 1917 ITA

No deduction shall, as regards income derived from any trade, be made in respect of any of the following matters: — … (c) the rent or cost of repairs of any premises not occupied for the purposes of the trade, or of any dwelling house or domestic premises, except such part thereof as may be occupied for those purposes …

Section 13(c) of the 1925 ITA

No deduction shall, as regards income derived from any trade, be made in respect of any of the following matters: — … (c) the rent or cost of repairs of any premises not occupied for the purposes of trade, or of any dwelling house or domestic premises, except such part thereof as may be occupied for the purposes of trade …

Section 12(b) of the 1941 ITA

No deduction shall in any case be made in respect of the following matters: — … (b) domestic or private expenses including the rent of or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade, or of any dwelling house or domestic premises except in respect of such part as may be occupied for the purposes of trade …

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List of Abbreviations