So, you may be forgiven for not noticing, with all that’s going on in the world right now, but it’s tax time again. Yay, right? While the pandemic continues to drastically alter the way we live and work on a daily basis, it has also contributed to some changes regarding your tax return.
If you’ve been working from home for all or a portion of the last financial year, you owe it to yourself to be aware of what has changed when it comes to working from home tax deductions.
This time last year, we published a piece on what COVID-19 would mean for your taxes – feel free to revisit this piece for a bit of background.
For now, let’s focus on this financial year so you can lodge your return with the confidence that you’re playing by the rules when it comes to claiming working from home expenses.
How much can I claim?
It’s the question we all want answered, right? Well, while there is no limit to the amount that you’re able to claim, you need to make sure that you’ve:
- Completed your calculations for claiming in accordance with the rules, AND
- Got the necessary proof to back up your claims should you be asked to present this.
If you’ve ticked these two boxes, then you are able to claim any amount that you’re entitled to.
What are the rules for claiming working from home expenses?
If you’ve been working exclusively from home over the past 12 months, and you have an area within the home set aside exclusively for the purposes of work, then the good news is you may be able to claim both occupancy and running expenses.
If you regularly perform your working role outside the home (such as at the office) and have sporadically worked from home over the past year, then you’re unfortunately unable to claim occupancy expenses, even if you have a dedicated workspace in your home.
Here are some examples of working from home tax deductions you may be able to make:
- Occupancy expenses – things like your rent, mortgage interest, council rates, land taxes, and in some limited cases, home insurance premiums.
- Heating, cooling and lighting – Maintaining comfort and the ability to see what you’re doing is a non-negotiable, and is something that is usually taken care of by an employer when you’re at the office. Working from home means you can claim a portion of your home utility bills related to the time you spent in your workspace at home. You can’t claim for periods when this workspace was being used for activity other than work, nor for the remainder of your home outside your workspace.
- Home office equipment – many of us would have upped our home office game in the past year, and the good news is that for things like computers, printers and phones, you’re able to claim the full cost (for items up to $300 in value) or the decline in value for items costing over $300.
- Call costs and phone rental – Feel free to claim a portion of your bills reflecting the share of your work-related calls. This includes both landline and mobile phones.
- Home office depreciation – For furniture and fittings such as desks, shelving and cupboards, you’re able to claim deductions for the decline in value of these assets. The amount you claim should reflect the proportion of time these assets are used for work-related activity VS personal/private use.
- Depreciation of office equipment and computers – As with furniture and fittings, if you’ve bought technology items like computers this year, you can claim depreciation based on the time used for work purposes. This may include computers, laptops, tablets, smartphones and printers.
- Other work from home expenses – Don’t forget to claim the work-related proportion of other working from home costs, such as computer consumables (think printer ink/storage), stationery, phone and internet/data costs and any cleaning costs you’ve incurred.
What are the methods for claiming working from home tax expenses?
Okay, so here’s where it’s important to pay attention. We know how important it is for many to maximise their working from home tax return this year, but there are some slight changes to the methods of claiming, with so many of us opting to work from home over the past year.
The shortcut method for home expenses
The ATO had previously announced the shortcut method in response to so many Australian employees working from home. Via the shortcut method, you’re able to a tax deduction of 80 cents for each hour worked from home between March 1 and June 30.
This method covers everything – from electricity and gas to phone and data – the lot.
- Pros – This method is great for employees working from home and making do – if you’re answering emails on your kitchen table, don’t worry – we see you. Before this method was introduced, you basically needed to have a dedicated workspace in the home. Using the shortcut, you can claim the deduction regardless of where you’re working.
- Cons – The shortcut can only be used for hours worked from home from March 1, 2020. If you were working from home before this date, you’ll have to use one of the other below methods to claim. Importantly, this method means you can’t then claim individual expenses on top of this. So, if you have a massive deduction for things like depreciation or phone/data, you may get a larger return by using another method.
The fixed rate method for home expenses
Using the fixed rate method, you’re able to claim a flat deduction of $0.52 for every hour worked from home. This covers things like electricity, gas, decline in value of furniture and fittings, and cleaning. To claim using this method, you need to have a dedicated workspace set up in your home.
After claiming using the fixed rate, you can then go on to separately claim for phone/data costs, decline in value of technology items, and stationery and computer consumables.
- Pros – Using this method could end up landing you a higher return than the shortcut method, provided you’ve kept pretty accurate paperwork on how much of your expenses can be attributed to working from home use. If you’ve racked up high phone/data bills this year or have invested in upgrading your home office, this might be the more valuable option.
- Cons – You need to have had a dedicated workspace in the last financial year, and have kept accurate records, to be able to confidently claim using the fixed rate method.
The actual cost method for home expenses
The third option available is to claim the actual cost of expenses incurred while working from home this past year. It takes the most time, and can be quite involved, but if you’re the type of person who keeps meticulous records, and already incurs a lot of expenses, this may be the option that could generate the highest return.
For example, for your claim on electricity used, you’d need to look at the cost of power you paid per kilowatt, then the number of hours you used working from home equipment in the last financial year. Similarly, with phone records, you’d need to itemise each call made from your bill and calculate the actual cost of calls/data used specifically for work purposes.
- Pros – If you’re already incurring large costs, and your record keeping and analytical skills are on point, then feel free to tackle this method if you have the time.
- Cons – If your records are all over the place, or your window of free time to allocate to this method is fleeting, it can be a daunting undertaking. This method could be something you wish to allocate to your tax agent.
If you’re after more information, the ATO has published complete information on claiming working from home expenses on their website.