With 30 June just around the corner, tax return preparation for 2021 is front of mind. With the world being turned upside down due to the Coronavirus pandemic and many now using a part of their home as their full time or part time office, the question taxpayers have for their tax advisers are around what deductions can be claimed as a result of working from home.
ATO’s rules for home office deductions
The pandemic and the rise of people working from home has recently seen the ATO change some of the rules concerning claiming home office expenses as well as other expenses incurred during the course of working from home.
Firstly it is important to start by clarifying what expenses you cannot claim. Non-deductible expenses are those incurred in order to live in your home including rent or mortgage repayments, insurance, council rates and water are excluded. Please also note you cannot claim a deduction for items provided by your employer, or if you have been reimbursed the expense.
Home office expenses calculations
There are essentially two ways of calculating Home Office Expenses.
The ATO provides a fixed rate method or you can go down the path of calculating your actual costs.
The fixed rate method allows you to claim a deduction of 52 cents per hour for each hour that you work at home. The fixed rate method is certainly the easiest way to calculate out of the two methods and requires you to keep a diary of your actual hours spent working from home during the year, or a four week period representative of your average time working from home. This method covers electricity and gas at your home as well as the decline in value/repairs of any office furniture. Additional costs such as your mobile phone usage, internet usage and equipment and stationery are not included within this method and can be claimed in addition, at the work related percentage that you use these items.
Coronavirus pandemic and the ‘shortcut method’
Due to COVID-19, which resulted in many working from home since around March 2020, the ATO has introduced a rate of 80 cents per hour which can only be used for the period of 1 March 2020 to 30 June 2021. This method is known as the shortcut method.
The key thing to note in regards to the shortcut method is that it covers all of your expenses from working at home including electricity and gas, cleaning costs of your dedicated work area, computer consumables (such as paper and ink) and stationery, phone and internet expenses, home office equipment (including computers, printers, phones, furniture and furnishings). It is therefore important to consider and calculate which method will provide you with the highest deduction, be that 80 cents per hour worked which covers all of your home office expenses, or 52 cents per hour worked, in addition to claiming your mobile phone, internet and other home office expenses.
The actual cost method means exactly that. You can claim a tax deduction for the running costs resulting from working at home including electricity and gas, phone and internet, cleaning, home office equipment and stationery. You can only claim a portion of these expenses and you must keep records of these expenses. The portion that you can claim will be the percentage that you use your home and additional equipment for work purposes. You can calculate the work-related percentage by keeping a record of the actual hours you worked from home during the year, or by keeping a diary of a four week block which represents the average amount of time you work from home and then deriving a percentage to apply to your work-related expenses. If you don’t have a dedicated work area, such as a home office, you will generally only incur minimal additional running expenses and you must also take into account other members of your household when you work out your expenses.
Records are key
In summary, working from home provides a wide range of expenses that can be claimed as deductions. It is important to keep records and only claim what can reasonably be attributed to your work and to exclude any private portions or reimbursements. With many still in some different degrees of isolation, 2021 tax returns will likely see much higher home office expense claims than in the past.
ATO’s rules for work-related travel
Generally, most people cannot claim the cost of travelling to and from work, and working from home as a result of COVID-19 does not change this. For example, if you are working from home because of COVID-19 but need to go to your regular office one day per week, your home-to-work travel is still private travel and cannot be claimed.
If you need help with calculating and claiming your work related travel or home office expenses, including what method will be the most adapted to your own situation, our team of Tax experts can help.
If you need help with calculating and claiming your home office expenses, or what method will be the most adapted to your own situation, our team of Tax experts can help.
For more detailed information on deductions, read this article from the ATO.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.