If you performed some of your work from your home office during the 2020 financial year, you may be able to claim a deduction for the costs you incur in running your home office for work-related purposes.
Perhaps you’ve rushed out to buy:
- a new work desk
- a Bluetooth keyboard
- a new laptop or computer
- new stationery
- a work phone
- or even a webcam to conduct online meetings
You may have even noticed a spike in your household bills including:
- heating & cooling
- phone costs
- internet costs
- Cleaning costs
Or, you may have bought some new equipment as part of the new “asset write-off” regulations by the government.
If you’re unsure about what you need to do, and what you can and can’t claim this year, we’re able to help!
One big question that may be on your mind is:
“Can I claim for any of these working from home costs?”
Right now, the only answer we can give you is, Possibly.
For most of us, the best way to receive some money back on these expenses will be to make a claim at tax time.
Here are some examples of things you may be eligible to claim in your tax return this year:
- New office equipment (new office chair, keyboard, laptop, webcam, desk, etc)
- Home office-related expenses (stationery, printer ink, paper)
- A portion of your phone/internet expenses
- A portion of your home office running costs (eg. electricity, heating)
If you would like to claim a deduction in your tax return, all of the following must apply:
- you must have spent the money
- the expense must be directly related to earning your income
- you must have a record to prove it
Expenses You Can’t Claim
According to the ATO website, if you are working from home, you can’t claim:
- the cost of coffee, tea, milk and other general household items your employer may otherwise have provided for you at work
- costs related to children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
- items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone.
- time spent not working, such as time spent homeschooling your children or your lunch break.
Additionally, if you were considering claiming some of your usual expenses such as car, travel or clothing (regardless of whether you have incurred them or not) be careful!
Correct Record Keeping
One of the most important things you need to be doing right now is to be gathering and holding onto receipts and records.
If you have experienced a change to your usual work patterns due to COVID-19 and are wanting to claim some of your household running costs, you will need to hold onto additional records and keep a 4-week diary.
Keeping a diary will help to record the number of hours you have worked from home and relevant expenses.
You could also record this with a:
- roster or
- similar document that sets out the hours you worked.
This will ensure that you’re covered for any changed work patterns, especially if you have previously used a:
- logbook method to calculate car expenses
- four-week representative period to calculate working from home deductions.
If you’d like more clarity on what records you should be keeping, you can download this free Records PDF here.
The ATO created this document to provide a summary of the key records you need to keep to claim work-related expenses and deductions.
COVID-19 Impact – New Arrangements
The Australian Taxation Office (ATO) has announced special arrangements this year due to COVID-19 to make it easier for people to claim deductions for working from home. The new arrangement will allow people to claim a rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.
Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate. The requirement to have a dedicated work from home area has also been removed.
This new shortcut arrangement does not prohibit people from making a working from home claim under existing arrangements, where you calculate all or part of your running expenses. Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method, and must use the pre-existing working from home approach and requirements. The ATO will review the special arrangement for the next financial year as the COVID-19 situation progresses.
Working From Home Claims For 1 March To 30 June 2020
There are three ways that you can choose to calculate your additional running expenses for the 1 March – 30 June period:
- claim a rate of 80 cents per work hour for all additional running expenses(Shortcut method ). This is a newly introduced method specifically for “COVID-19”.
- claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device (Fixed rate method)
- claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis (Actual cost method).
The ATO has stated that the three golden rules for deductions still apply. Taxpayers must have spent the money themselves and not have been reimbursed, the claim must be directly related to earning income, and there must be a record to substantiate the claim.
Working From Home BEFORE 1 March 2020
Claims for working from home expenses prior to 1 March 2020 should be calculated using the existing approaches and are subject to the existing requirements.
A deduction can be claimed for home office running expenses comprising of electricity, gas and depreciation of office furniture (e.g. desk, tables, chairs, cabinets, shelves, professional library) in the amount of:
- The actual expenses incurred; or
- 52 cents per hour
Like making a motor vehicle claim, diary/logbook evidence should be maintained for a 4-week period to establish a pattern of working from home and justify the number of hours you are claiming.
No deduction is allowed where no additional costs are incurred e.g. you work in a room where others are watching TV, or the income-producing use of the home is incidental e.g. 52c per hour would not be allowed for a fax machine permanently left on to receive documents.
You will need receipts for:
- home office equipment used for work purposes
- repairs relating specifically to the home office or furniture and equipment used for work purposes
- cleaning expenses of home office
- any other day-to-day running expenses for the home office
- diary entries to record your small expenses ($10 or less) totalling no more than $200
Telephone (inc. mobiles) + Internet Costs
If work or business calls can be identified from an itemised telephone account, then the deduction can be claimed for the work or business-related portion of the telephone account. A representative four-week period will be accepted as establishing a pattern of internet and telephone use for the entire year.
Telephone rental expense may be partly deductible if you are “on call” or required to contact your employer or client on a regular basis.
Depreciation On Equipment
Depreciation on home office equipment including office furniture, carpets, computer, printer, photocopier, scanners, modem etc. used only partly for work or business purposes can be apportioned.
The claim is based on a diary record of the income-related and non-income related-use covering a representative four-week period. The diary needs to show:
- The nature of each use of the equipment
- Whether that use was for an income-producing or non-income producing purpose
- The period for which it was used
Claims for occupancy expenses are allowed only if the home is used as a place of business. Occupancy expenses include rent, mortgage interest, water rates, repairs, house insurance premiums. The claim can be made as an apportionment of total expenses incurred on a floor area basis.
Warning: Being able to claim these expenses may affect your ‘main residence exemption’ for capital gains tax purposes if you sell your house in the future.
When Is A Home A Place Of Business?
The following factors, none of which is necessarily conclusive on its own, may indicate whether, or not, an area set aside has the characteristics of a place of business:
- the area is clearly identifiable as a place of business
- the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally
- the area is used exclusively, or almost exclusively, for carrying on a business, or
- the area is used regularly for client or customer visits.
Here are some other conditions which you need to consider if wanting to claim working from home expenses at tax time:
- Working at the kitchen bench or table does not count as a home office
- You must have a separate room in your house dedicated to being a home office
If you don’t have a proper office set up, it’s worth talking to your accountant about what you can do.
If you use your home to carry out income-producing activities as a matter of convenience, you are not entitled to a deduction for occupancy expenses. It would be rare for an employee to be able to claim occupancy expenses.
For further information and expert assistance to prepare your tax return and maximise your tax refund, contact our office today!