With the financial year ending just over a week ago and people starting to think about completing their tax returns, we thought that we should spend some time covering home office deductions. For the first time, many clients have been forced to work from home and as such they may not be up to date with what they are entitled to claim. Additionally, in response to the Coronavirus (COVID-19) crisis, the Australian Tax Office (ATO) have brought a new simplified method of calculating your working from home deduction.
Now you may choose one of the three methods below to claim your deduction, based on which method is best for you. These methods include:
- claim a rate of 80 cents per work hour for all running expenses – the taxpayer will only need to keep a record of the number of hours worked from home and has been labelled the ‘Shortcut Method’. Please note, this method can only be used for the period 1 March to 30 June 2020;
- claim 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 phone and internet expenses, computer consumables, stationery and the work-related portion of the decline in value of a computer, laptop or similar device; or
- claim the actual work-related portion of all running expenses, which must be calculated on a reasonable basis.
The ATO considers that occupancy expenses relating to the home (such as rent, mortgage interest, property insurance and land taxes) are not deductible just because a person is required to work from home temporarily as a consequence of the Coronavirus crisis. Occupancy expenses are only deductible if part of the home has the character of a place of business.
Emelia is an employee who works as a copy writer and editor. She starts working from home on 16 March as a result of the Coronavirus crisis and replaces her face-to-face meetings with online video conferencing.
Emilia has just bought a new laptop, desk, chair and stationery. She also wants to claim some additional gas, electricity, phone and internet costs due to working from home.
Under the shortcut method, Emilia can now claim all her expenses using a rate of 80 cents per hour. All she needs is her timesheets (or other record showing the hours worked at home).
As an alternative, Emilia can use the existing working from home calculations to claim her deductions. Under that method, she can claim the desk, chair, gas and electricity at the rate of 52 cents per hour, but would need to work out the decline in value of the laptop, and calculate the work-related portion of the laptop, stationery, phone and internet for the period she worked from home.
Data matching is used by the ATO to ensure that the deductions claimed in your tax return are appropriate for your industry. During the 2019 financial year, the ATO received all of the individual expense categories for all work related expenses lodged on Australian tax returns. They will utilise this data when analysing your return to ensure that you are not over claiming. Should your deductions be materially different than your peers, it is likely that you will receive some follow up correspondence so that you may explain what these deductions relate to.
Although travel from home to work is generally not deductible, the answer may be different if your home is also your place of work. You may be entitled to a deduction for travel from home to work, if you can show that the home is the base of your income-earning activities and that you are travelling “in the course of” your work from the time you leave home.
For more information or to find out how we can assist you with your tax return this financial year, get in touch with our team on 1300 363 866.