Are you working from your kitchen bench in lieu of COVID-19? When it comes to claiming your working from home expenses, the Australian Taxation Office (ATO) created a short cut method of claiming 80 cents per working hour. This all-inclusive method was created at the height of the pandemic in response to the sudden influx of makeshift home workspaces.
Many people have opted to work from home even through the shift back into offices, albeit at a reduce rate. The working from home short cut method can still be used at a flat rate, instead of having to calculate and apportion complex expenses in this instance. It’s easy to work out. Basically, the number of business hours worked is multiplied by 80 cents per hour.
Pro Tax Tip: If claiming using this method, make sure you keep a timesheet or work diary to prove your claims.
The short cut method can be used by multiple people in the same house. Unlike other methods, you do not need to have a dedicated work area. Don’t forget, this method of claiming your expenses is all-inclusive. You won’t be able to use this method and then claim your phone and internet charges, or decline in value of a laptop or furniture as an extra tax deduction on top.
Pro Tax Tip: Not all methods are equal. An ITP Accounting Professional can help you work out which method of claiming your working from home expenses will result in a larger tax return.
Whichever way you choose to claim your working from home expenses, there are 4 types of expenses that cannot be claimed.
- Personal expenses – these include coffee, tea and toilet paper. They might be supplied by your employer but are not directly related to earning an income and are considered to be personal in nature
- Children’s education – expenses such as online learning courses or laptops for your children are not tax deductible
- Large, up-front expenses – Any asset over $300 either in total or per item cannot be claimed immediately. They will need to be depreciated over a number of years. The time is specified by the ATO
- Occupancy expenses – Rent, mortgage interest, property insurance, land taxes and rate cannot be claimed as a working from home expense for an employee. If you are working from home, the ATO doesn’t consider your home as a place of business for taxation purposes. If occupancy expenses are claimed, you might be up to pay Capital Gains Tax (CGT) if you sell and move.
Three Methods
For 2020-21, there are three methods for claiming your working from home expenses on your income tax.
- 80 cents per hour flat rate – all-inclusive rate for all of your expenses
- 52 cents per hour – this rate includes heating, cooling, lighting and cleaning of a dedicated work area. Also included is the decline in value of office furniture and furnishings. The work-related portion of your phone, internet, computer consumables, stationery and decline in value of tools such as a computer is then calculated
- Actual value – you’ll need to keep a track of your work hours and all of your costs and then claim back the actual work-related costs
To read about the methods in detail, click here.
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3 Main Rules
The ATO has three main rules when it comes time to claim your work-related expenses:
- Your expense mu be work-related
- You must have already incurred the expense
- You must be out of pocket and not have been reimbursed
You’ll also need records.
Receipts, tax invoices, bank statement are some of the way you can prove your claims. You will also need to keep a work diary for a four week representative period to show your working pattern from home. This is a record of your actual working hours in the form of a diary or timesheet. If your circumstances change, you’ll need to start a new diary to take into account your new working hour / routine.
If you are depreciating assets, your receipts must show the date you first started using the asset for work-related purposes, the effective life of the asset, the method used to work out the decline in value of the asset and how you have calculated the percentage of work use for the asset.
ITP Accounting Professionals have helped Australian individuals and businesses with all aspects of their tax, businesses finances and business growth. Phone 1800 367 487 and chat with a friendly tax accountant today.