Due to COVID-19 restrictions, there is an increasing number of people working from home and if you’re one of them, you need to understand what you can claim for home office expenses.
How Often Do You Work From Home?
Applicable tax deductions depend on when and how often you work from home.
So, what if you work from home some of the time?
Most people do some work from home and it can vary from answering a few emails or, working from home for a few days or the whole of the week. So what you can claim?
The Australian Taxation Office “ATO” states that all three of the following must apply:
- You must have spent the money;
- The expense must be directly related to earning your income; and
- You must have a record to prove it.
So, if your employer has reimbursed you for the expense, then you cannot claim a deduction.
So, What if You Don’t Have a Dedicated Work Area at Home but you do some work on the couch, dining table or in bed?
- You can claim for the some of the expenses, e.g. the work-related portion of internet, phone or, the decline in value of a laptop.
- You need proof of how you arrived at your expense claim. For example, keeping a calendar/diary of the time spent on work when at home.
What If You Do Have A Dedicated Work Area at Home?
- Then other expenses such as the running costs of your home are claimable. E.g. a portion of your electricity bill and the decline in value of the office equipment.
What if you Run Your Business from Home?
If you have a space set aside in your home for your business then you may be able to claim expenses for the portion used. The ATO will be wanting to see an identifiable area of the home which is used for the business.
Normally, your residence is exempt from Capital Gains Tax (CGT) but if you choose to claimed occupancy expenses such as mortgage interest and rates, then your residence will not be completely exempt from CGT when you sell. A partial exemption may apply.
What Home Office Expenses Can You Claim?
If you have a dedicated area, e.g. a study, then necessary running costs for that area can be claimed as expenses, including electricity, cleaning, decline in value of furniture, etc. Remember that any claim can only be for the work-related portion of the expense.
In line with ATO rulings, running expenses can be claimed in one of two ways. Both of these methods described below require records to be kept of the actual number of hours worked from home for the year, or alternatively a timesheets/diary record for an appropriate four-week period which can be applied to your expenses across the year.
– Fixed rate of 52 cents per hour – claims for internet and phone expenses, computer consumables and stationery, and decline in value for on computer and other equipment needs to be worked out separately.
– Actual expenses – you need to keep records of the total expenses for lighting, cleaning, heating and cooling of your home for the year, as well as retain the receipts of any asset purchases. You will need to calculate the floor area of the dedicated work space as a percentage of the total floor area of the house, as well as the percentage of the year you used that part of your home exclusively for work.
Work-related phone and internet expenses
You can claim up to $50 for phone and internet expenses without substantiating the claim (but the ATO still might expect you to prove the claim), or you can work out your actual expenses. Should you choose to use the latter option, you will again need to determine your work-related use percentage. This can be based on either actual annual usage or a four-week period which can be applied to your expenses across the year.
Unless you run your business from home and you have a dedicated phone/internet line, it’s unlikely that you will be able to claim one hundred percent of your phone and internet expenses. If your employer provides you with a phone, you can’t claim for these expenses. If you’re a casual worker, you can’t claim a deduction for phone rental expenses.
Decline in value
For depreciable assets e.g computers and printers, you may be able to claim decline in value if the cost of the item was over $300. If the asset costs $300 or less, an immediate deduction is allowed for the full cost of the asset. If you are not using the fixed rate of 52 cents per hour for running cost expenses, decline in value or “depreciation” deductions might also be available for office furniture used for work purposes in a home office.
Expenses such as rent, interest on your home loan, property insurance and rates can only be claimed if your home is your ‘place of business’ and no other work location has been provided to you. Generally, occupancy expenses are not a deduction available to employees.
|Deductions you may be able to claim||Home is principal workplace with dedicated work area||Home not principal workplace but has dedicated work area||You work at home but no dedicated work area|
|Work-related phone and internet expenses||Yes||Yes||Yes|
|Decline in value of a computer (work-related portion)||Yes||Yes||Yes|
|Decline in value of office equipment||Yes||Yes||No|
Due to the changes in how we work that have come about due to COVID-19, the ATO has released new rules catering to our changed working environments. The new rules come into effect from 1 March 2020 until at least 30 June 2020, with the possibility of extension upon review at this date.
If you are working from home due only to COVID-19, occupancy costs described previously will not be able to be claimed. Add to this, expenses previously catered by employers such as coffee, tea and milk are unable to be claimed.
In addition to the two methods outlined above, namely:
- Fixed rate of 52 cents per hour, with a separate claim for phone and internet expenses, as well as decline in value of office equipment; and
- Actual expenses
A third method has been added for the current situation – a shortcut method of 80 cents per hour encompassing all additional running expenses. You are able to claim using this method if you are working from home due to COVID-19 and you are:
- Working at home to perform regular employment duties, i.e. not just minimal tasks such as monitoring emails
- Incurring additional deductible running expenses because you are working from home
This shortcut methods covers all running expenses including electricity, cleaning costs, phone and internet costs, computer consumables, stationery, and the decline in value of capital items such as home office furniture, laptops, computers and other office equipment. There is no requirement to have incurred all of these expenses, nor do you need to have a separate or dedicated work area. You simply need to have incurred additional expenses as a result of working home due to COVID-19.
If you do opt to use this shortcut method, you are unable to claim an additional deduction for any of the above expenses.
The ATO will require you to keep a record of all hours worked from home where you meet the above eligibility. This could include timesheets, diary notes or rosters.
If you have further questions about claiming home office expenses as tax deductions, we’re happy to help – or go to https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses
Author: Marc Banvill