The Cost of Working from Home – How to Claim Tax Deductions
Working from home has become the norm for many Australian business owners and employees throughout COVID-19, but when it comes to tax time, how do you work out what to claim?
As many employees are advised to work from their homes, dining room tables across the country are being transformed into desks, the daily commute is down the hallway, and the family kitchen has become the staff room.
Synergy Director Angie Barnard said “These are such interesting times for businesses as we challenge ourselves and our staff to work differently – both geographically and logistically. But we have seen a rise to the challenge with businesses adapting to new spaces and new ways of delivering their services to the community.”
What does that mean from a tax-deductible perspective?
The good news is that the ATO has announced a shortcut in claiming deductions for working from home. It’s quick and super simple – because let’s face it, if you have never worked from home before, it may be tricky figuring out what and how to claim.
How you usually claim deductions
Traditionally, you could make a claim two ways for work-from-home tax deductions: running expenses and occupancy expenses.
Running Expenses: Claimed at 52c per hour for heating, lighting, cooling etc. Plus, you could separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.
Occupancy Expenses: Claiming the work-related portion of your heating, lighting and cooling based on the size of your home office. Plus, you could separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.
If you worked from home prior to 1 March, you could claim a rate of 52 cents per work hour for things like heating or cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumption etc.
To claim using this method, keep records of either:
- Your actual hours spent working at home for the year
- A diary for a representative four-week period to show your usual pattern of working at home. You can then apply the four-week period across the remainder of the year to determine your full deduction amount.
You need to separately determine out all other work from home area expenses, such as:
- Phone and internet expenses
- Computer consumables and stationery
- A decline in value on computers or other equipment.
The existing claim method may be beneficial to some businesses which incur significant expenses (with records) on depreciation such as laptops, printers and office supplies.
The temporary shortcut method to claim deductions
The new arrangement (from March 1 to at least 30 June) called the Shortcut Method will allow people to claim a flat rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.
It includes phone, internet, electricity and computer depreciation and consumables. And it only requires you to record the number of hours worked as evidence. Plus, you don’t have to have a dedicated area of your home set aside for working (such as private study).
Angie suggests keeping a timesheet, which is essential for claiming utility deductions, and you can only claim the portion of your bill that is work-related.
For example, if 80% of your usage is for personal use, you can only claim 20% as a deduction. However, desks, computers, stationery and other items needed to set up a work-from-home office are eligible deductions.
Always keep your receipts!
Here’s a quick guide of what the shortcut method rate covers for those working at home due to the coronavirus:
- Electricity for lighting, cooling or heating and running electronic items used for work (e.g. computer), and gas heating expenses
- The decline in value and repair of capital items, such as home office furniture and furnishings
- Cleaning expenses
- Your phone costs, including the decline in value of the handset
- Your internet costs
- Computer consumables, such as printer ink
- The decline in value of a computer, laptop or similar device.
If you are working from home due to COVID-19, you CAN’T claim:
- Occupancy expenses such as mortgage interest, rent and rates
- The cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work.
You can use either method – but you can’t use both!
The Australian Tax Office is reminding people that the three golden rules for deductions still apply.
- You must have spent the money yourself and not have been reimbursed
- The claim must be directly related to earning income, and
- There must be a record to substantiate the claim.
Wherever and however you are working through this time, remember: the team at Synergy are only a phone call away if you need clarification, or have concerns or questions. We are all in this together, and together we can help you get through.
Find more great tips, stories, and other seriously useful information in our Knowledge Centre.
Disclaimer: Whilst this publication has been carefully prepared it is written in general terms and is intended as general information and to provide commentary. It does not purport to be comprehensive or render any advice. No one should rely on information contained in this publication without first obtaining professional advice relevant to their specific situation.
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