Your Essential Guide to Work From Home Tax Deductions

Overview:

With many of us now working remotely due to the coronavirus, the Australian Taxation Office has released updated information designed to clarify the process for claiming eligible tax deductions while working from home.

Headlining the updated information released by the ATO is an updated ‘shortcut’ method that allows those working from home to claim 80 cents per working hour for all their running expenses, rather than the method that requires each cost to be individually calculated.

While the ‘shortcut’ method will be beneficial for many and saves time and paperwork, it could also leave certain workers short of claiming their full entitlement for deductions. It is therefore important to understand each of the options available and what requirements need to be met in order to be eligible.

Understanding the basics

As large numbers of Australians are directed to work from home due to the coronavirus, many of those will have incurred costs to set-up a workspace, while some expenses that were previously of a private nature may now be work-related.

In these instances, you may be eligible to claim tax deductions at the end of the Financial Year provided the expenses satisfy the following criteria:

• You must have spent the money.
• The expense must be directly related to earning your income.
• You must have a record to prove it.
• You cannot have been reimbursed for the expense by your employer
• If you received an allowance in respect of the expense by your employer, the allowance must be included in your assessable income but the expense remains deductible.

What can and can’t be claimed?

For those working from home, it is also important to understand what you are eligible to claim and what can’t be claimed.

Unless otherwise stated, immediate deductions can be claimed for the following expenses:

• Electricity expenses for heating, cooling and lighting your work-from-home area and running your work equipment proportionate to your work use.
• Cleaning costs for your work-from-home area.
• Phone and internet expenses proportionate to your work use.
• Stationery and computer consumables (e.g. printer ink, paper).
• Home office equipment such as computers, printers, phones, furniture and furnishings as follows:
  • A full immediate deduction for items with a cost of $300 or less; or
  • Decline in value deductions over the life of the item if the item cost over $300.

In terms of what can’t be claimed, if you are merely working from home (as opposed to operating a business from home), you can’t claim certain expenses such as mortgage interest, rates or rent related to your home or the cost of consumables such as coffee, milk, food and other household items.

Many different options – which is right for you?

As those who regularly worked from home prior to the coronavirus can attest to, it can be headache to apportion your expenses between private and work use, while calculating the depreciation on items costing more than $300 can also be somewhat complex.

For some, doing so will be worth the time, while for others, the time it takes to keep records and apportion expenses will outweigh any potential benefits. Fortunately, all Australians working from home now have several options as to how they want to claim their eligible deductions.

The shortcut method 

As mentioned, this new measure introduced by the ATO allows you to claim 80 cents per work hour as a tax deduction while working from home and all that you need to do is keep track of your hours worked in a diary or a time sheet to substantiate your claim. For the average person working 40 hours per week, this would see you eligible to claim around $120 per month as a tax deduction. This change will apply back from March 1 through to June 30 this year, at which time it will be re-assessed by the ATO for the 2020-21 Financial Year.

Actual cost method

For those who are adept at bookkeeping, this may be the method for you. For each of the eligible expenses noted above under ‘What can and can’t be claimed?’ you will need to apportion them between work and private, while also being able to substantiate each individual expense with calculations, invoices and receipts. If you have larger expenses related to working from home or you have incurred significant costs to set up a work space such as buying a new printer or a computer monitor, it may be worthwhile going down this path.

Fixed rate method

The third option is a hybrid of the actual and shortcut methods and combines some of the benefits of each. Under this method, you are eligible to claim:

• a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture;
• the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery; and
• the work-related portion of the decline in value of a computer, laptop or similar device.

Like with the other methods, you must be able to substantiate your deductions with a diary or time sheet and substantiate each individual expense with calculations, invoices and receipts.

As tax time approaches, it is important that all Australians who are now working from home take the time to think about what eligible deductions they may be able to claim, while it is also worth considering which method of deductions will result in the greatest net benefit. This will ensure that you receive the appropriate level of tax relief considering the additional expenses that you may be shouldering in setting up or maintaining a work space at home.

You can find an easy to use Fact Sheet that you can circulate to your employees here.