Introduction
This advice addresses the query from TP, a computer specialist, regarding the deductibility of commuting expenses totalling M91,761 from his employment income for the tax year ended March 2023. The total amount comprises M70,201 for travel between his home and office during normal working hours, and M21,560 for similar travel after hours to resolve urgent work issues. TP contends that because he is on call 24 hours a day and has specialised work equipment at home, his home constitutes a second workplace, rendering all travel between his home and the office deductible.
This advice will analyse TP’s position under the Lesotho Income Tax Act 1993 (“the Act”) and relevant case law, primarily from South Africa, which provides persuasive authority in Lesotho. The core issue is whether TP's travel expenses were incurred "in the production of income" and whether they are prohibited as "private or domestic" expenditure. The advice concludes that both categories of expenses are, on the balance of probabilities, not deductible.
The Legal Framework for Deductions in Lesotho
The starting point for any claim for a tax deduction is the general deduction formula. Section 18(1) of the Income Tax Act 1993 provides that a taxpayer is allowed a deduction for "all expenditure and losses, not being expenditure or a loss of a capital nature, to the extent to which the expenditure or loss is incurred by the taxpayer during a year of assessment in the production of income".
To be deductible, an expense must therefore meet several criteria:
- It must be actually incurred during the year of assessment.
- It must not be of a capital nature.
- It must be incurred in the production of income.
In addition to this positive test, the Act contains specific prohibitions. Section 20 of the Act lists expenses for which no deduction is allowed. Crucially for TP's situation, section 20(a) expressly prohibits the deduction of "domestic or private expenditure or losses, including… the cost of commuting between the taxpayer’s residence and place of work".
Therefore, for TP’s expenses to be deductible, they must not only be incurred in the production of income but also must not fall foul of the specific prohibition on private expenditure, particularly the cost of commuting.
Analysis of Normal Commuting Expenses (M70,201)
The M70,201 incurred for travel between TP’s home in Morija and his office in Maseru during normal working hours represents classic commuting costs. The deductibility of such expenses has been extensively considered by the courts.
The established legal principle is that expenditure incurred to travel to and from a place of work is not incurred in the production of income, but rather puts the taxpayer in a position to be able to produce that income. It is considered a prerequisite to the performance of income-earning activities, not a part of the activities themselves. The leading South African case on this principle is Commissioner for Inland Revenue v De Villiers 1962 (1) SA 581 (A), where the court held that travel to the place where a taxpayer practises his profession is generally not deductible. The expense is seen as being incurred too remotely from the income-earning operations.
Furthermore, section 20(a) of the Act places the matter beyond doubt. It explicitly singles out "the cost of commuting between the taxpayer’s residence and place of work" as a non-deductible private or domestic expense. TP’s travel from his residence in Morija to his place of work in Maseru fits this description perfectly. His argument that his home is also a workplace does not alter the fundamental nature of this daily journey during standard hours; it is still travel from his residence to his primary office.
Therefore, the M70,201 in expenses for normal commuting will not be deductible. This part of his claim has virtually no prospect of success.
Analysis of After-Hours Commuting Expenses (M21,560)
The deductibility of the M21,560 for after-hours travel is more complex, as it involves TP's "dual workplace" argument. TP argues that because he is on call and travels to the office to perform specific duties that cannot be completed at home, this travel is not "commuting" but rather travel between two places of work.
For this argument to succeed, TP must first establish that his home is genuinely a place of work or "office". The installation of specialised equipment by his employer is a strong indicator in his favour. However, courts traditionally apply strict tests for a home office. Generally, a part of the home must be set aside and used regularly and exclusively for the purposes of the taxpayer's trade or employment. The facts do not state whether TP has a dedicated room or area that is used solely for his work. If he uses the equipment in a living room or a multi-purpose study, the revenue authority is likely to challenge the claim that the home constitutes a formal place of work.
Even if his home were accepted as a place of work, the travel to the main office in Maseru must still pass the "in the production of income" test and avoid the section 20(a) prohibition. TP's argument is that the purpose of the after-hours travel is not to get to the start of a work day, but to carry out a specific, immediate task required by his employer. This makes the connection between the expense and the income-earning activity much closer than normal commuting. In this sense, the travel could be seen as being part of the business operation itself.
There is some limited judicial support for this type of argument in other jurisdictions. For instance, in certain tax court cases, professionals like doctors on call have been permitted to deduct the costs of travelling from home to a hospital for an emergency. The reasoning is that the duty commences when the call is received at home, and the travel is an integral part of fulfilling that specific duty.
However, the major obstacle remains the clear and unambiguous wording of section 20(a) of the Act. It prohibits the deduction of the cost of "commuting between the taxpayer’s residence and place of work". The language does not make an exception for the time of day, the urgency of the travel, or whether the taxpayer was on call. The journey is, physically, a trip from his residence to his place of work. The Lesotho Revenue Services (LRS) is highly likely to interpret this provision strictly and literally.
While TP could argue that the term "commuting" implies a regular, daily journey to and from work at the start and end of a standard day, and that his emergency call-outs are different in character, this is an interpretive argument that may not persuade the LRS or a court. The dominant purpose of the trip is still to get the taxpayer from his home to the office where the work needs to be done. As established in cases like Commissioner for Inland Revenue v Solaglass Finance Co (Pty) Ltd 1991 (2) SA 257 (A), where expenditure has a dual purpose (private and business), the taxpayer must show what portion was for business, which is difficult here. The entire trip serves the private purpose of getting from home, and the business purpose of getting to work.
Given the explicit statutory prohibition, it is more likely than not that these expenses would also be disallowed.
Conclusion and Advice
Based on the analysis of the Income Tax Act 1993 and relevant judicial principles, the advice to TP is as follows:
- The claim to deduct M70,201 for commuting expenses incurred during normal working hours is certain to fail. These costs are considered private in nature, incurred to put TP in a position to earn income, not in the direct process of earning it. More importantly, they are expressly disallowed by section 20(a) of the Act.
- The claim to deduct M21,560 for after-hours travel is also unlikely to succeed. Although the argument that his home is a second workplace and the travel is part of his duties has some merit, it faces the significant hurdle of the broad prohibition in section 20(a). The LRS and the courts tend to interpret such prohibitions strictly. Unless TP can strongly distinguish this travel from "commuting", the expense will likely be viewed as non-deductible private expenditure.
In summary, TP should be advised against claiming a deduction for any of the M91,761 in commuting expenses, as the claim has a very low probability of success and may attract scrutiny from the LRS.
References
Commissioner for Inland Revenue v De Villiers 1962 (1) SA 581 (A).
Commissioner for Inland Revenue v Solaglass Finance Co (Pty) Ltd 1991 (2) SA 257 (A).
Lesotho. (1993) Income Tax Act 1993.
