Last year we wrote about changes to working from home tax deductions, which you can read about here
For this year, we want your tax to be easy to understand, so we have put together an easy-to-read and understand core information related to work-related expenses especially during the time when many of us have had to work from home no thanks to COVID.
The ATO has made tax time a little simpler for this financial year by adding temporary shortcuts which allow taxpayers and their accountants to calculate the working from home expenses a few ways.
Short Cut Method 80c
One of these methods is commonly known as the $0.80 per hour method. As with many things the ATO streamlines there is a catch.
It’s very important to note if you do choose to use this method, it is an all-inclusive type method. So that means you cannot claim any other working from home expenses, including depreciation of office furniture or any equipment, mobile phone, internet and the likes for work use.
You don’t need a dedicated work area to use this method, however, you do need to keep a record of the number of hours worked from home. And this can be in the form of a timesheet, a roster, or a diary, sounds simple, yes!
Important note: This method is temporary, and currently is available for claims between
- 1 March 2020 – 30 June 2020 and
- 1 July 2020 – 30 June 2021, being the 2021 financial year
The next method is the fixed-rate method, which is $0.52 per work hour.
So instead of calculating your actual expenses for heating, cooling, lighting, cleaning, and the depreciation of home office furniture, you will need to separately calculate the phone and internet usage, computer consumables, stationery, and other computer depreciation expenses, allotting for private use.
If you use the fixed-rate method you will need to have a dedicated work area and a diary for a four-week period that represents your pattern of home office use over the financial income year.
Actual Cost Method
Last of all methods is the actual cost method, which is as it sounds, the actual work-related portion of all of the costs incurred consequently working from home.
Important to note that this method requires a dedicated room, as you don’t incur additional running expenses if other members of your home are in the same room as you while you are working from home.
- Decline in value of depreciating assets– such as home office furniture (desk, chair) and furnishings, phones and computers, laptops, or alike devices
- Cleaning expenses,
- Heating, cooling, and lighting– electricity and gas
- Telephone and internet
- Computer consumables and stationery – mouse, keyboard, tablets
- Occupancy expenses (rent, mortgage*/council rates*) are generally not tax-deductible unless you can provide proof that you have allocated space designed for work purposes, they may be eligible to claim the work-related portion.
*note that CGT can apply if claiming expenses of capital nature. You can read more on this here
Regardless of the method that you choose to use to calculate your working from home expenses, it’s extremely important to keep all those records and substantiate them!
Pro and con of each method
Short Cut Method $0.80
Actual Cost Method
As with any dos, there are not to-dos, and the most common not-to-dos when it comes to claiming working from home expenses is claiming expenses you are not entitled to claim.
The top three mistakes often made when claiming working from home expenses are:
- Personal expenses such as coffee, tea, and toilet paper.
While they might normally be supplied by an employer, they still aren’t directly related to earning income.
- Incorrect apportionment of work-related space
- Expenses related to children’s education is another one, such as online educational learning courses, computers and laptops. They’re not claimable either.
Trends in Claiming Work-Related Expense
In the previous financial year, there was an increase in claims for personal protective equipment. Things like hand sanitizer, masks, particularly for those in front-line roles.
There was also a decrease in claims such as travel and car expenses of course, which was to be expected given the impacts of COVID with people in lockdown or working from home.
It is also important to note if your job requires you to be in close proximity with customers or clients during COVID you may be able to claim a deduction for items like
- face masks
- antibacterial spray and the likes
This includes industries like health care, retail, and hospitality. These items will have had to be purchased for use at work and pay for it using your money and not being reimbursed for that, which is actually THE rule when claiming any work-related expense.
As always, what you can claim really does depend on their circumstances.
While we always ask questions to attain as much information regarding your line of work as we all have different working environments and are able to claim varied expenses it is important to keep in mind any changes that may occur in your line of work as we know as much as you tell us.
Work out your expenses under each method (if applicable), you never know which one may be best suited for you.