Work from home tax deductions during COVID-19
Due to COVID-19, your working arrangements may have changed. If you have been working from home, you may have expenses you can claim a tax deduction.
Tracking these expenses can be challenging, so from 1 March to 30 June 2020, the ATO has introduced a temporary shortcut method. It’s a simple way to calculate these expenses with minimal record keeping requirements.
To claim a deduction for working from home, 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.
This means you cannot claim a deduction for items provided by your employer or if you have been reimbursed for the expense.
If you are not reimbursed by your employer, but receive an allowance from them to cover your expenses when you work from home, you:
- must include this allowance as income in your tax return.
- can claim a deduction or the expenses you incur.
EXPENSES YOU CAN CLAIM
If you’re an employee who works from home, you may be able to claim a deduction for expenses relating to that work.
Employees who work from home can claim the work-related proportion of their running expenses. These expenses are the cost of using equipment and utilities at your home for work and include:
- 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
- computer consumables (such as printer paper, ink) and stationery.
- home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the full cost of items up to $300
- the decline in value of equipment, furniture and furnishings in the area you use for work
- the cost of repairs to this equipment, furniture and furnishings
Phone and internet expenses
If you use your phone or internet for work, you can claim a deduction for the work-related percentage of your expenses if you paid for these costs and have records to support your claims.
You need to keep records for a four-week representative period in each income year to claim a deduction of more than $50.
These records include phone and internet bills (paper or electronic) from which you can identify work-related calls and internet usage. Diary entries and any other evidence which shows you worked from home and made work-related phone calls will also help to demonstrate that you are entitled to a deduction.
EXPENSES YOU CAN’T CLAIM
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
- time spent not working, such as time spent home schooling your children or your lunch break.
- Employees generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes, water and rates.
In most cases, if you work from home as an employee and claim working from home expenses, it will not have capital gains tax (CGT) implications for your home.
However, if you are running a business from home or claiming occupancy expenses (like rent, mortgage interest or rates), then CGT may apply. If you do claim occupancy expenses, you don‘t get the full main residence CGT exemption, although you may be entitled to a partial exemption.
CALCULATING YOUR EXPENSES
There are three ways you can choose to calculate your additional running expenses:
Fixed rate method
You can use a fixed rate of 52 cents per hour for each hour that you work from home (instead of recording all of your actual expenses for heating, cooling, lighting, cleaning and the decline in value of furniture).
To claim using this method, keep records of the actual hours you worked at home during the income year, or keep a diary for a representative four-week period to show your usual pattern of working at home.
You can then apply this amount of use across the remainder of the year to determine your full claim.
You need to separately work out your expenses for the work-related portion of phone and internet usage; computer consumables and stationery; decline in value on your computer, laptop or similar device.
Phone and internet expenses – Claiming up to $50
If your work use is incidental and you are not claiming a deduction of more than $50 in total, you may make a claim based on the following, without having to analyse your bills:
- $0.25 for work calls made from your landline
- $0.75 for work calls made from your mobile
- $0.10 for text messages sent from your mobile.
To calculate actual running expenses if you have a dedicated work area, you:
- record the number of actual hours you worked from home during the income year
- work out the cost of your cleaning expenses by adding together your receipts and multiply it by the floor area of your dedicated work area
- work out the cost of your heating, cooling and lighting by working out the following:
- the cost per unit of power used (using your utility bill)
- the average units used per hour – this is the power consumption per kilowatt hour for each appliance, equipment or light used
- the total hours used for work-related purposes while you were working from home.
You must also take into account the use of this area by other members of your household, if applicable, and apportion your expenses accordingly.
To calculate your deduction for the decline in value of equipment, furniture and furnishings that cost more than $300, the item must be depreciated and apportioned to reflect your work-related use. The ATO has a depreciation tool to help you work this out.
If you did not have a dedicated work area, the additional expense for lighting, heating, cooling and electricity should be calculated by determining the actual cost of running each unit you used per hour and multiplying that by the hours you spent working at home. Generally, the amount of additional expense will be small. This will be particularly so where other people are using the area at the same time you are working there. In those circumstances there will be no additional cost for lighting, heating or cooling.
Phone and internet expenses
If you have a phone or internet plan where you receive an itemised bill, you need to determine your percentage of work use over a four-week representative period which can then be applied to the full year.
You need to work out the percentage using a reasonable basis. This could include:
- the number of work calls made as a percentage of total calls
- the amount of time spent on work calls as a percentage of your total calls
- the amount of data downloaded for work purposes as a percentage of your total downloads.
If you have a bundled plan, you need to:
- apportion the cost of the plan between the services provided, and
- identify your work use for each service over a four-week representative period during the income year, which can then be applied to the whole
The same method should be used for non-itemised plans.
You can claim a deduction of 80 cents for each hour you work from home from 1 March to 30 June 2020 as long as 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
- have incurred additional running expenses as a result of working from home.
You do not have to have a separate or dedicated area of your home set aside for working, such as a private study. The shortcut method covers all deductible running expenses, including:
- electricity for lighting, cooling or heating and running electronic items used for work (for example your computer) and gas heating expenses
- the decline in value and repair of capital items such as home office furniture and furnishings including capital items that cost less than $300
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink and stationery
- the decline in value of a computer, laptop or similar device.
You do not have to incur all of these expenses, but you must have incurred additional expenses in some of these categories as a result of working from home.
If you use the shortcut method to claim a deduction for your additional running expenses, you can’t claim any other expenses for working from home for that period.
You must keep a record of the number of hours you have worked from home as a result of COVID-19. Examples are timesheets, diary notes or rosters.
If you use the shortcut method to claim a deduction in your 2019–20 tax return, include the amount at the ‘other work- related expenses’ question in your tax return and include ‘COVID-hourly rate’ as the description.
Remember, you can only use this method from 1 March to 30 June 2020. For information on how to calculate your working from home expenses prior to 1 March, or if you choose to use one of the existing home office expenses methods to calculate your deduction, see ato.gov.au/home
RECORDS YOU MUST KEEP
You can use the method or methods that will give you the best outcome as long as you meet the criteria and record keeping requirements for each method.
If you use the four-week representative period to calculate your expenses over the income year and your usual pattern of work changes throughout the year, you will need to keep separate records to show your expenses. For example, if you normally work from home one day a week and due to an emergency situation such as COVID-19, bushfire or drought, you’re required to work from home for an extended period, you need to keep records of both:
- the actual hours you’ve worked from home due to the emergency situation
- your usual working from home arrangements
For more information on record keeping, click here.
To assist you further with your income tax return, the ATO also provides a list of occupation guides to help you understand what you can claim and cannot claim based on particular professional.
Generally if you are an office worker, check out what expenses you can claim here (one-page PDF guide)
CHECKLIST OF TAX DEDUCTIBLE ITEMS
It’s not about cheating the system, or creative accounting. It’s all about claiming what you’re entitled to.
If you need assistance with your tax return, please feel free to contact KMT office on 08 8431 0022 or email firstname.lastname@example.org.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from your accountants at KMT Partners. Information is current at the date of issue and may change.
Source: ATO Tax Time Toolkits