As the situation around COVID-19 continues to develop, we understand you may now be working from home and you may incur expenses that you can claim at tax time.
The ATO have introduced a temporary simplified method (shortcut method) for you to calculate the additional running expenses you incur as a result of working from home due to COVID-19. The shortcut method allows you to claim 80 cents for each hour you work from home and covers all deductible running expenses. Multiple people living in the same house can claim this new rate.
With your home now technically being your workplace, below we outline some of the key rules for claiming deductions associated with working from home.
Whilst we detail what we know so far, as more information becomes available on this matter, we will continue to keep you updated.
Working from home -What Expenses are Tax Deductible?
When working through what is deductible, it is important to distinguish between two different categories of expenses:
Operating expenses(running costs), and
- Occupancy expenses(home office expenses)
1. Operating Expenses
The work related portion of the following operating expenses may be legitimately claimed:
- Depreciation of home office furniture, fittings and equipment such as computers and desks; If the amount is less than $300, an immediate deduction for the work-related portion can be claimed. Otherwise it must be written off over the effective life of the asset.
- The cost of repairing home office furniture and fittings;
- The cost of your air conditioning (heating / cooling), electricity and cleaning your home to the extent that the cost exceeds the amount normally spent if not working from home;
Phone calls and mobile phone usage;
Mobile phone usage is subject to some administrative short-cuts with a standard $50 fixed deduction per year being allowed. Otherwise, an apportioned deduction based on actual expenses is required, which can be quite rigorous, requiring a diary to be kept for a representative 4-week period.
- Internet access charges;
- Printer and printer cartridges.
In respect of depreciation of home office furniture and costs in air conditioning (cooling, heating) lightning, the ATO applies some useful administrative rules so as to allow either a reasonable portion based on a reasonable test of the actual expenses incurred or a flat rate of 80 cents per hour (previously 52 cents per hour). This flat rate includes heating, cooling, lighting, cleaning and the decline in value of furniture, so if using the flat rate, you can’t also claim depreciation on office furniture although it can still be separately claimed for office equipment.
If applying the former, the receipts will be needed together with a detailed explanation of the basis of apportionment such as floor space used for work purposes relative to total work space in the house. If the latter, a record can be kept of hours worked from home or a diary should be maintained forat least 4 representative weeks to record the amount of time the home is used for work purposes.
If as a result of the Coronavirus, 20 hours of a working week is conducted at home for 12 weeks in the year to 30 June 2020, $192 can be claimed as a deduction (20 hours x 12 weeks x $0.80).
2. Occupancy Expenses
In general, occupancy expenses cannot be claimed by employees. This includes expenses such as:
- Interest on mortgages,
- Council rates,and
- Land tax
All such items relate to costs associated with occupying the premises as a whole - as opposed to running costs associated specifically with working from home. The only genuine qualification to this exclusion arises if there is a dedicated area which is dedicated as a workplace.
*If a claim is made for occupancy expenses, the capital gains tax (CGT) main residence exemption will be compromised. It is not so compromised if only operational (running) expenses are claimed.
Other equipment and services needed to work from home
Many Australian employees are working from home for the first time. To facilitate this, equipment and services such as laptops or other mobile devices, headsets, web cameras, cloud-based platforms for video and audio conferencing and webinars have been purchased in the last few weeks.
*If the employer has paid for any of these items outright or reimbursed the employee for any such expenses incurred, the employee cannot claim any amount and the employer is entitled to the deduction for the expense or the decline in value of the depreciating asset. If the employee has borne the cost without being reimbursed by their employer, they are entitled to claim a deduction to the extent of taxable use, but they must adjust their claim for any private use.
We will keep you posted on updates/developments as they come in.