In 2021 Tax Tips

What You Can Claim On Tax While Working From Home

Did you know that you can claim a few tax deductions if you work from home in Australia? Even if your home office is a just a corner of the living room, there are still options available to you. In this blog post, we’ll take a look at what you can claim on tax while working from home. So, whether you’re a self-employed contractor or run your own business from home, read on for helpful tips!

Many people in Australia work from home, and if you are one of them, you may be wondering what kind of deductions you can claim on your tax return. Luckily, there are quite a few! In this blog post, we will take a look at the most common deductions that people claim for working from home.

Are you one of the lucky people who gets to work from home in Australia? Depending on your work arrangements, there are a few things you may be able to claim on your tax return. Here’s what you need to know.

Coronavirus Isolation: Here’s What You Can Claim On Tax While Working From Home

There are now at least 368 cases of COVID-19 across Australia, and the number of cases is expected to climb significantly in the coming weeks. Already, many employers are activating emergency plans to keep their businesses open while protecting staff, and a key component of that is to encourage – or even mandate – staff to work from home for an extended period.

However, working from home comes with its own challenges, not least the additional costs that it imposes on employees.

Think about it: increased utility bills, increased use of your personal mobile phone and home internet, and even increased expenses for keeping your home working area clean and tidy are just some of the additional costs that many will face as they respond to the challenge of home working.

So, is it possible to claim a tax deduction for any of these extra costs? Happily, the answer is yes.

What Tax Deductions Can You Claim?

If you work from home, you can claim the work-related proportions of household costs such as:

  • Heating, cooling and lighting bills;
  • Costs of cleaning your home working area;
  • Depreciation of home office furniture and fittings;
  • Depreciation of office equipment and computers;
  • Costs of repairing home office equipment, furniture and furnishings;
  • Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated); 
  • Computer consumables (like printer ink) and stationery; and
  • Phone (mobile and/or landline) and internet expenses. 

You might think that you can claim a percentage of rent or the interest on a mortgage if you’re working from home using a home office, but sadly, this isn’t allowable.

Ideally, you should have a specific room set aside as a home office. However, if you are using a room with a dual purpose (e.g. dining room) or a room shared with others (e.g. lounge room), you can only claim the expenses for the hours you had exclusive use of the area.

How Do You Make Your Claim? 

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There are two methods:

Diary method/actual running expenses

Keep a diary to work out how much of your household running expenses relate to doing work in your home office. The diary needs to detail the time you spend in the home office compared with other home office users. Keep your diary record for a representative four-week period. The ‘work-use proportion’ you come up with over that four-week period can then be applied to all your actual expenditure over the course of the year. This usually produces the larger deduction of the two methods, but the record-keeping requirements are more stringent.

It may well be that you already working from home from time to time, but the amount of home-working will spike over the next few weeks or months. If that’s the case, keep a separate diary for the period of your ‘corona-induced’ home working to justify the larger claim over this period – and don’t try to apply this larger work-related proportion to the whole year!

ATO rate per hour method

Alternatively, you can use a fixed rate of 52 cents per hour for home office expenses for heating, cooling, lighting, and furniture value decline instead of keeping details of actual costs. You just need to keep a record of the number of hours you use the home office and multiply that by 52 cents per hour. 

In addition to claiming 52 cents per hour, you can also make a separate claim for:

Finally, a word of warning: it is quite common for people to have insufficient documentation to support a home office claim, particularly around the proportionate split between business use and personal use, so be sure to keep records. 

Expenses You Can Claim

According to the Australian Taxation Office (ATO), people working from home are able to claim the following ‘running expenses’:

  • electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
  • cleaning costs for a dedicated work area
  • phone and internet expenses
  • computer consumables (for example, printer paper and ink) and stationery
  • home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the:
  • the full cost of items up to $300
  • decline in value for items over $300.

Things You Can’t Claim

You’re unable to claim expenses related to occupancy, like your mortgage interest, rent or rates.

You also can’t claim general household items your employer might normally have provided you with at the office, such as milk and coffee.

How To Calulate Your Claims

Calculating expenses can be tricky at the best of times. So the ATO has introduced a simplified ‘shortcut method’ of calculating extra expenses incurred from 1 March 2020 until at least 30 June 2020.

Under this method, you can claim an 80c deduction for every hour you work from home due to COVID-19. The ATO says you can only do this if you are:

  • working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
  • incurring additional deductible running expenses as a result of working from home.

The shortcut method covers deductible running expenses, including:

  • electricity used for lighting, heating or running your computer
  • the decline in value for home office furniture
  • phone costs
  • internet costs
  • printer ink
  • stationery.

Record Keeping

When claiming any tax deduction, you must keep records.

If you use the shortcut method, you’ll only need to keep a record of the hours you work from home. You can do this by using a spreadsheet or keeping a diary.

If you choose to claim expenses using different methods, you’ll need to record not only your hours worked from home but also detailed records of all expenses, e.g. receipts and utility bills.

What You Can and Can’t Claim

The way we work is changing, and for many people working from home is the new normal. This allows for a huge amount of flexibility, plus there are numerous ways to deduct home office costs in your tax return.

Many people don’t know they are able to claim for working from home and often miss out on valid deductions. But it’s important to make sure you stay within the rules to avoid being penalised for making a mistake.

The most common errors are: claiming too high a work-related proportion for a particular type of expense, claiming something that shouldn’t be claimed at all or simply not keeping records to substantiate the expense.

If you work from home (either part-time or full time), then some portion of the home office expenses may be claimed as a tax deduction. However, if you set up your home office in a room that is shared or has a dual purpose (such as a living or dining room), you can only claim the expenses for the hours you had exclusive use of the area.

What Are The Rules For Claiming Expenses When You Work From Home?

If your home is your place of work and you have an area set aside exclusively for work activities, you may be able to claim both occupancy and running expenses. However, suppose you carry on your work or business elsewhere (such as an office) but occasionally do some work at home. In that case, you cannot claim occupancy expenses even if you have a home office area set aside.

Home office expenses you might be able to claim include:

Occupancy expenses

Such as rent, mortgage interest, rates, land taxes and house insurance premiums (but only in limited circumstances).

Heating, cooling and lighting.

You have to heat your home office in the winter and keep it cool during the summer. You also need light to see what you’re doing! That means that you can claim a proportion of the various household utility bills related to your time working in your home office. However, you can’t claim for periods where the home office space is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.

Home office equipment, including computers, printers and telephones

You can claim the full cost (for items costing up to $300) or the decline in value (for items costing $300 or more). If you’re self-employed, you may be able to write off equipment irrespective of the cost immediately.

Work-related phone calls (including mobiles) and phone rental

You can claim a portion reflecting the share of work-related use of the line if you can show you are on call or have to phone your staff, employer, customers or clients regularly while you are away from your workplace.

Depreciation of home office furniture and fittings

If you kit out your home office with furniture such as desks, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That’s likely to lead to a write-off of the cost over a period of several years (the “effective life” of the asset).

Depreciation of office equipment and computers

Similarly, if you purchase technology items for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:

  • Computers
  • Laptops
  • Tablets
  • Mobile phones
  • Printers
  • Other items Make sure you claim for the work-related proportion of other costs such as:
  • Computer consumables (like printer ink)
  • Stationery
  • Telephone and internet costs
  • Cleaning costs
  • Costs of repairs to your home office furniture and fittings

There Is Now A New Method You Can Use To Calculate Your Work From Home Expenses

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Which method is best for you?

The ATO recently announced a new method aimed at making it easier for people who are new to working from home to make a claim.

Coined the “shortcut method”, this new method allows you to claim 80c per hour for each hour worked from home, from 01 March 2020 to 30 June 2020 (2019/20 income year) and 01 July 2020 to 30 June 2021 (2020/21 income year).

To calculate if the new “shortcut method” or the existing “running expenses” is the right one for you, let’s take a look at each one. Depending on your circumstances, choosing the wrong method means you could cheat yourself out of big dollars on your tax return.

Running expenses: the existing fixed-rate method

You can claim 52c per hour you work from home. Plus, you can separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.

The “shortcut” method: the new way

Similar to running expenses, under this method (available only from March 2020 onwards), you can claim 80c per hour. But, and this is important, it includes everything! You can’t claim other work from home items like phone, internet, stationery or furniture/equipment depreciation separately. The ATO is promoting this “80 cents” method, but this type of claim results in a smaller tax refund for most people.

The “occupancy expenses” method: the other existing method

For simplicity, this article only compares the “running expenses fixed rate” method and the new “shortcut” method. There is a third, more complicated method of claiming home office expenses available. This method is only available is you permanently work from home on and ongoing basis, so it doesn’t apply for COVID-19. 

Which Method Works For Me?

As you can see from the above examples, it comes down to what work from home expenses are covered by your employer vs which ones you pay for yourself. In circumstances where an employer covers everything, the new 80c method might work for you, but for most people where their expenses come out of their own pocket, the original Running Expenses method gives a better tax refund.

It’s important to note, as, with any deduction on your tax return, the standard deduction rules apply:

  • You must have paid for the expense out of your own pocket,
  • It must be directly related to your work, and
  • You can’t have been reimbursed for the expense already.

Common Mistakes People Make When Claiming Working From Home Expenses

Forgetting to apportion shared bills: People mistakenly claim their entire monthly bill even though the cost of that bill is shared with others. For example, if you live in a share house with 2 other people and split the monthly internet bill of $120 equally, your share is $40 per month. That is the amount you use to work out your claim, not the full $120.

Not understanding how depreciation rules work: If you purchase a work-related item such as a laptop that costs more than $300, you can’t claim it in full on your next tax return. Instead, it is claimed over the ATO defined working life of the item. Assets you purchase (desks, computers, printers etc) all have different “working lives”, so it’s important to check with your accountant about this one.

Claiming home office expenses when you don’t have a dedicated room or office in your home: While the ATO has relaxed this requirement for “Shortcut Method”, to claim any home office expenses from prior to March 2020, you must have a dedicated room or office in your home. The kitchen table or couch doesn’t count.

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