What can I claim on home office expenses at tax time?

Whether this is your first tax return or not, as you prepare to fill out your tax return you may be wondering how much can you claim for working from home? The amount of work-related expenses you can claim on your tax as deductions while working from home in Australia may have changed because of COVID-19. Here is help for what it may mean for your end of year tax return.

 

Australian employees working from home during COVID-19, between 1 March to 30 June, could claim 80 cents per hour back as a tax deduction. It helps to understand if this claim and other pre-existing claims for home office expenses are applicable to you to avoid underclaiming at tax time.
 

Preparing to lodge your tax return between 1 July and 31 October 2020 may be a distant thought for you right now. However, if you're one of the many Australians now working from home for the foreseeable future, it helps to consider the tax implications of working from home.
 

As Australians move to work from home, office suppliers have seen spikes in demand for monitors, home printers, computer accessories, cables, ergonomic chairs, and standing desks. With more people than usual at home, an increased phone bill, heating, internet, video calls - a spike in bills is almost inevitable.
 

If your employer is not paying for home office equipment or even providing daily allowances for bills at home, you may be able to claim for these items at tax time.

Understanding what you can claim

Generally, as an employee of a business, when working from home, you can consider claiming for the work-related proportion of your expenses in two broad areas:

1. Running expenses

This includes items like: lighting, heating and cooling, cleaning, the decline in value of equipment, furniture and furnishings in the area you use for work, the cost of repairs to this equipment, and other running expenses, including computer consumables (such as printer, paper and ink) and stationery.
 

Running expenses may be deductible where someone with a home office can establish that they have incurred additional expenditure on the running expenses as a result of their income producing activities. Essentially, taxpayers can claim a deduction actually incurred through their income earning activities that is additional to their private expenditure.
 

You may work from home but may not have a particular area set aside primarily or exclusively for income-producing activities. For example, Clare is a teacher, and could be writing student reports from her kitchen. There is no defined area from which the work is done, but Clare can still claim deductions for some utility usage such as gas or electricity. She would need to apportion expenses and be able to show how she reached these amounts.

2. Phone and internet expenses

You may use your personal phone or internet for work related purposes, and you may have paid for this yourself and have supporting records. In this case, you may need to keep diary records for a four-week period (a representative period of each income year) to claim a deduction of more than $50. These records include phone and internet bills from which you can identify work-related calls and internet usage. Diary entries and any other evidence which shows you worked from home and made work-related phone calls will also help to demonstrate that you are entitled to a deduction.

Understanding how you claim for running costs

There are now three ways of calculating home office expenses depending on your circumstances. You can consider claiming via:

Shortcut method:

The ATO has announced new rules^[i] which will make it easier for Australians to work from home during the coronavirus lockdown. This rate is only available for the period 1 March to 30 June 2020.
 

This method allows people to claim 80 cents per hour for each hour worked from home, rather than needing to calculate costs for specific running expenses whilst working from home. This covers all your work from home expenses, including phone expenses, internet expenses, the decline in value of equipment and furniture, and electricity and gas for heating, cooling, and lighting. A dedicated workspace is not required to claim 80 cents per hour fixed rate. The ATO has further information about the shortcut method.

Fixed rate method:

A rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery, plus the work-related portion of the decline in value of a computer, laptop or similar device. The ATO have further information about the fixed rate method^[ii].

Actual cost method:

Enabling you to claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis. This may include the following expenses: electricity and gas for cooling, heating and lighting. If you don't have a dedicated work area, such as a home office, you will generally only incur minimal additional running expenses. The ATO have further information about the actual cost method^[iii].

 

People can make a working-from-home claim under any one of these methods. The shortcut method represents a simplified method of calculating expenses from 1 March to 30 June 2020 with a record of hours worked being the only requirement.
 

If you prefer to use the fixed rate or actual cost method, you must record the number of hours you worked from home along with keeping receipts or tax invoices of your expenses, and then apportion the use between what is personal and what is work related, on a “reasonable basis”.
 

It is worth noting that whilst on the surface an increase from 52c to 80c, may sound attractive, depending on your personal circumstances it may not mean that you get the biggest deduction come tax time.

Example:

Lynne works from home, in a dedicated home office, for 40 hours per week. Lynne works out that 60% of her phone use is work related and 70% of her internet use is also work related.

 

Here’s what Lynne can claim:

 

Calculation via the shortcut method

Description	Total
40 hours per week x 80 cents x 16 weeks (March – June)	$512.00
No phone or internet can be claimed as it’s included in the 80 cents	$0.00
Lynne’s total work from home claim (March – June)	$512.00

 

Calculation via the fixed rate method

Description	Total
40 hours per week x 52 cents x 16 weeks (March – June)	$332.80
60% of her $120 monthly phone bill x 4 months	$288
70% of her $100 monthly internet bill x 4 months	$280
Lynne’s total work from home claim (March – June)	$900.80

Calculation via the actual cost method

Lynne has the following home office running expenses, including energy expenses that have been calculated using electricity authority hourly costs per appliance. The following figures are based off diary entries over 16 weeks, from 1 March to 30 June 2020 .

Description	Total
Decline in value of desk (value $350 over 10 years, proportion over 16 weeks)	$10.77
Decline in value of chair (value $150 over 1 years, proportion over 16 weeks)	$46.15
Electricity for 60W ceiling light (0.7c per hour for 40 hours per week x 16 weeks)	$4.48
Electricity for computer (1c per hour for 40 hours per week x 16 weeks)	$6.40
Electricity for heating/cooling (9c per hour for 40 hours per week x 16 weeks)	$57.60
60% of her $120 monthly phone bill x 4 months	$288
70% of her $100 monthly internet bill x 4 months	$280
Lynne’s total work from home claim (March – June)	$693.40

 

If you do consider claiming for your work-from-home, it is worth remembering that for any claim you must have paid for the expense out of your own pocket. All claims must be directly related to your professional work and you can't have been reimbursed for the expense already.

 

The new shortcut method introduced for COVID-19 will have different impacts on individuals depending on their personal situation. If you are looking to maximise your tax refund and save more, it helps to spend some time working out whether the new 80 cent shortcut method is the best option for you. If you are unsure, consider having a conversation with a registered tax agent.

Common scenarios

George has a dedicated room for work

George is an account manager who works as an employee for a marketing agency in the city. George’s employer has agreed that he can work from home all five days per week. He has a home office that he works from. George and members of his family use the home office for private purposes, including personal use of the computer and to store household items.

What can George consider claiming?

George can take advantage of the fact he has a dedicated home office and is able to claim back some of his gas and electricity costs, which he does using the fixed rate method.
 

George keeps a record of the number of hours worked and multiplies by the ATO agreed rate of 52 cents per hour.
 

George must remember to only claim running costs for the portion of the expenses that relate to his work-related use of the home office. In working out his work-related use of the home office and the computer, George must consider not only his own private use but also his family’s use of the home office and the computer.

Sarah doesn’t have a set work area

Sarah is a primary school teacher. Prior to the COVID-19 pandemic, Sarah occasionally worked in the kitchen at home – for example, to prepare for classes. For several months during the tax year, due to COVID-19, Sarah worked from home. She does not have a room set aside exclusively for work.

What can Sarah consider claiming?

Sarah may only claim running costs associated with the work she does at home – such as the work-related proportion of the decline in value of the laptop she uses to prepare the classes and the additional cost of lighting, heating and cooling her kitchen. She is also entitled to claim the cost of electricity to power her laptop for the hours she spends working at home.
 

If Sarah’s family was in the kitchen while she was in there preparing classes, she could not claim the additional cost of lighting, heating and cooling the kitchen. Sarah can still claim the cost of electricity required to power her laptop for the time she spent working and the work-related proportion of the decline in value of the laptop she uses to prepare for classes.
 

With the ATO’s announcement of the new ‘shortcut method’, a dedicated workspace is not required to claim 80 cents per hour fixed rate.  

Anisa chooses to work from home in a dedicated home office

Anisa is a web developer for a large company and usually works from their office in her city. While Anisa is not required to work from home, her employer supports it. Anisa is not provided with the work equipment to use at home, so she uses her own laptop, internet connection, mobile phone, and thumb drive. She is not reimbursed by her employer for these costs.

What can Anisa consider claiming?

Anisa is entitled to claim running costs including the work-related proportion of the decline in value on her laptop, her office desk and chair, and using the fixed rate method claim back a percentage of lighting, heating and cooling that reflects her work-related use of the office, as well as the cost of using her own internet connection and mobile phone for work. Anisa needs to apportion these expenses to take her private use into account.

Violet works from home and her employer pays all her home office costs

Violet is a Human Resources Manager for a medium-sized company and usually works from their office in her city. To enable her to work from home during COVID-19, Violet is provided with all the work equipment to use at home by her employer including a desk, ergonomic chair, laptop, mobile phone and is also fully reimbursed for all her electricity costs whilst at work for lighting, her computer and heating/cooling.

What can Violet consider claiming?

Violet is not entitled to claim any running expenses nor phone and internet expenses as her employer has paid for these or agreed to reimburse her for these.

 

Getting further help

This article is a general summary only. For more information, speak with your tax agent or visit the ATO website^[iv]. 

 

^[i] For more on the ATO new working from home shortcut visit www.ato.gov.au/Media-centre/Media-releases/New-working-from-home-shortcut/

^[ii] For more on the ATO fixed rate method visit: https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim

^[iii] For more on the ATO actual cost method visit: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim
^[iv] For more on Home Office expenses visit: www.ato.gov.au/workingfromhome.

 

This article is from Westpac’s financial education specialists, continuing the legacy of Sir Alfred Davidson in helping you create a better financial future