Many employees worked from home during the various lockdowns suffered around the nation over the past two years. Many still have that option and either work from home as a part of their normal job or work a combination of in-office and at-home days.
The Australian Taxation Office (ATO) introduced a short cut method to help employees claim working from home expenses during the pandemic, which was extended until 30 June 2022. It is available to calculate deductions for working from home expenses for the 2020-21 and 2021-22 income years.
How To Work Out Your Expenses
Working from home expenses can also be referred to as home office expenses with one key difference: If you’re claiming using the short cut method of 80 cents per hour, you don’t have to have a dedicated office space. You could have worked from the kitchen bench, your couch in front of the TV or even from your bed.
This method incorporates all expenses in one blanket claim which including heating, cooling, phone, internet, office furniture, depreciation, the decline in value of your home office furnishings, cleaning, computer consumables. In short, this method includes all costs you’d incur through tending to your duties when you work from your home.
Pro Tax Tip: If you’ve been reimbursed from your employer, you can’t claim working from home expenses. Your allowance must be included in your tax return and then you can claim tax deductions against the allowance.
You must keep a record of the number of hours you have worked from home. This could be a:
- diary, or
- similar document that sets out the hours you worked.
What You Can’t Claim Using The Short Cut Method
There are some items the ATO will say ‘no’ to. You can’t claim occupancy expenses such as mortgage interest, rent or rates; or your tea, coffee, milk, biscuits or general household items your employer would have supplied for you at work.
Two other methods can be used to claim working from home expenses and may better suit your circumstances. These are:
- The Fixed Rate Method, and
- The Actual Cost Method
Pro Tax Tip: Working from home expenses can only be claimed if you’ve had to work from home to fulfil your employment duties, not just carrying out minimal tasks such as checking emails or taking phone calls. You’ve had to have incurred extra expenses as a result of working from home to claim these sorts of tax deductions.
Fixed Rate Method
To be able to use this method to claim working from home tax deductions, you must have a dedicated space from which you work. This includes an office, separate room, granny-flat or similar.
Using this method, you can claim a rate of 52 cents per hour for each hour you worked from home. This method includes extra expenses you might have incurred such as electricity or gas for heating, cooling and lighting; and cleaning your home office.
Additionally, you’ll be able to claim phone and internet expenses, computer consumables such as ink and paper and the decline in value of depreciating assets for items that are not classified as office furniture. These claimable items include computers and laptops.
Pro Tax Tip: Your records should show the work-related portion of expenses for items such as phone or internet. The work portion of the phone can be calculated by dividing the total work calls into the total calls in a monthly bill and then applying that percentage over the year and deducting the period where you were on holidays.
How To Keep Records For The Fixed Rate Method
You’ll need to back up your claims by proving your costs. A work diary is a must, and should show the number of hours you worked. You’ll need to keep a representative 4 week period to show your usual pattern of working from home which can be averaged out throughout the year. Your diary should also include your internet use for work and reduce the claim by the amount of hours you and other family members use the internet for private purposes.
Pro Tax Tip: You can use your four-week period as an example of your usual work patterns, but if your work changes, don’t forget to make a new, updated record. If your work varies throughout the year, you’ll need to keep a diary for the whole year.
Don’t forget your receipts and other paperwork which shows how much you’ve paid for work related items. These could be tax invoices, contracts or bank statements. You’ll need to keep a record of your phone accounts, which enables you to break down your business versus private use.
Actual Cost Method
In this method, you must calculate the actual costs you’ve incurred through working from home. This is the most tedious and time-consuming method, but may reap better results in some circumstances. You’ll need to keep track of each of your expenses.
Pro Tax Tip: You must have a dedicated work space to use this method. If you work from a common living area, you won’t be considered to have incurred extra costs and won’t be able to claim.
If your depreciating asset cost more than $300 per year, you can only claim a deduction for the decline in value over the asset’s effective life. If you use the asset privately as well as for business, you’ll have to apportion the expenses and claim only the business use.
If your assets cost $300 or less, you’ll be able to claim the full amount in the same year in which the cost was incurred. You’ll still need to apportion private versus business use.
You’ll be able to claim cleaning expenses for your home office area.
Heating, Cooling, Lighting
Work out the cost of your heating, cooling and lighting by using the:
- cost per unit of power used (your utility bill has this information)
- average units used per hour, which is the power consumption per kilowatt hour for each appliance, equipment or light used
- total annual hours used for work-related purposes by checking your record of hours worked or your diary.
Phone, Internet, Data
You can use an itemised phone bill, or average your costs by dividing your working hours into your total bill.
Computer Consumables and Stationery
Keep your receipts for these expenses and apportion work versus private use accordingly.
You’ll need a work diary as well as receipts and other proof of purchases to claim using this method in the same manner as the Fix Rate Method.
Generally, you can only claim occupancy expenses if you have a business. These types of expenses include mortgage interest, rent, council and water rates, land taxes and house insurance premiums. Claiming occupancy expenses will result in capital gains tax upon the sale of your home. A tax professional can help you work out if you are eligible to claim occupancy expenses against your business. Occupancy expenses will need to be apportioned according to the floor space your office takes up in your home. Clients should be able to meet with you in your home office in order to qualify for this deduction.
Pro Tax Tip: If you’re an employee working from home, you won’t be able to claim occupancy expenses and will have not capital gains implications.
Your ITP Accounting Professional can help you work out the best way to calculate and claim working from home expenses that will maximise your tax return. Phone 1800 367 487 and chat with a friendly professional today.