As the COVID19 pandemic continues to change the day to day running of our lives – many more Australians will find themselves working from home.
There is a lot of confusion surrounding what you can and can’t claim on your tax when it comes to working from home so the ATO has simplified things to assist with the changes brought about by COVID19.
According to the ATO to claim a working from home deduction – all of the following must apply:
- You must have spent the money (cannot claim on things provided by your employer or items that have been reimbursed)
- Expense is directly related to earning of your income
- You must have a record to prove it
If you work from home, you will be able to claim a deduction for the additional running expenses you incur.
Expenses that you can claim include:
- Electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- Cleaning costs for a dedicated work area
- Phone and internet expenses
- Computer consumables (for example, printer paper and ink) and stationery
- Home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the:
- full cost of items up to $300
- decline in value for items over $300.
Expenses you cannot claim if working from home only due to COVID19:
- Occupancy expenses such as mortgage interest, rent and rates
- Cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work.
New shortcut ‘COVID hourly rate’
The ATO have acknowledge that with so many more Australians working from home across a range of industries, it can be very difficult to keep records and track all these new expenses during this challenging time. Thus, they have introduced a shortcut method of calculating additional running expenses for the period between 1 March 2020 – 30 June 2020 (this could be extended depending on when usual working arrangements start to return).
This Shortcut method will allow people to claim a rate of 80c per work hour for all the additional running expenses (listed above) incurred while working from home. You can claim this as long as you are:
- working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls,
- incurring additional deductible running expenses as a result of working from home.
You do not have to have a separate or dedicated area of your home set aside for working, such as a private study.
You do not have to incur all of these expenses, but you must have incurred additional expenses in some of those categories as a result of working from home due to COVID-19.
For example: Jennifer shifted to Working from home on average 32 hours per week during the COVID-19 period for 4 months, her total home office tax deduction is calculated by:
32 hours x 16 working weeks x $0.80 = $409.60 tax deduction
This shortcut method is useful as it reduces the amount of record keeping and expense tracking involved with the usual claiming process however individuals will still need to record the number of hours they have worked from home as a result of COVID19 in the form of a timesheet, diary notes or rosters etc.
According to the ATO: If you use the shortcut method to claim a deduction and you lodge your 2019-20 tax return through myGov or a tax agent, you must include the note ‘COVID-hourly rate’ in your tax return.
Is this the only method available to calculate additional running expenses?
No – if you don’t wish to use the shortcut method there are two other options
- The Fixed Rate Method ─ which allows you to claim a constant rate of:
- 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture,
- the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery, and
- the work-related portion of the decline in value of a computer, laptop or similar device.
You are required however to keep a diary record of the actual hours you spent working from home for a minimum of 4 weeks. The amount is then multiplied by the total working weeks for the year and is applied by 52 cents to determine your total claimable tax-deduction.
For example: Jennifer worked on average 15 hours per week from home, her total home office tax deduction is calculated by:
15 hours x 48 working weeks x .52 = $374.40 tax deduction
- The Actual Cost Method ─ claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis. See this link to find out more information on how to do this calculation.
- you must have a dedicated home office to be eligible to claim actual expenses.
- you must keep records of all your running expenses such as receipts or bank transactions for your gas and electricity.
- Once you have calculated your gross total home running expenses you will then need to calculate your home office floor area as a percentage of your total home floor area.
Finally, you will need to maintain a diary record of the number of weeks you worked from your dedicated work-space at home. This will determine your claimable percentage of work-related usage.
Once you have worked out all three steps, you can then claim a deduction for the net proportion which reflects your overall home office expense.
For example: Jennifer lives alone and her gas and electricity bill for the 2020 financial year totalled $1,500. Her dedicated home office floor area equals 20m² and her overall home floor area equals 200m². She worked from home for 6 months of the year. She calculates her total home office running costs using the following method:
(20m²/ 200m²) x 1,500 x (6/12) = $75 tax deduction
For more information on the new Shortcut COVID19 Hourly Rate or any specific questions regarding how Working from Home will impact your tax return – please contact us at Walker Wayland NSW or for more general advice visit ato.gov.au/home.