Work From Home Tax Deductions explained

We understand that 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 deduction for at tax time.

 

Home Office deduction on tax return: requirements, records to be kept, what can be claimed. why is better to keep all receipts instead of claiming .80cents

 

BEFORE COVID (ORDINARY RULES)

Where a taxpayer maintains a room in their house and engages in income-producing work, they are able to claim a deduction for running costs. These costs include heating, cooling, lighting, cleaning and decline in value (depreciation) of office furniture.

The room does not necessarily need to be a separate office. It can be any room of the house. However, the taxpayer must be using the room exclusively at the time to be able to claim a deduction.

Deductions for home office ‘running expenses’ can be established via (2methods):

  1. a deduction for a proportion of actual expenses incurred or
  1. a deduction calculated at the rate of 52 cents per hour
Actual costs method

Taxpayers who use the actual costs method to claim a deduction for home office running expenses must provide evidence by producing records that show the amount of each expense and the deductible extent.

This claim can be work-related or related to self-education.

Claiming 52 cents per hour

The 52 cents per hour rate is considered reasonable to cover the running costs and depreciation on the furniture. Decline in value should be calculated separately for office equipment such as computers, photocopiers, etc.

A diary must be kept for a representative 4-week period to establish a pattern of usage and a new diary must be kept for each financial year. If a diary is kept for the 4-week period, the method used to calculate the home office deduction would be:

Calculation

=  (hours worked in 4 week period / 4 weeks) x weeks worked in year x .52

The 52 cents per hour includes an allowance for depreciation of office furniture as well as heating, cooling, lighting and cleaning. If using this method, no additional claim may be made for office furniture. Depreciation for office equipment, such as computers, printers, photocopiers may be claimed separately.

COVID RULES

The cents per hour have been increased to 80

You can claim a deduction of 80 cents for each hour you work from home from 1 March to 30 June 2020 (2020 Tax return) and 1 July to 31 December 2020 (2021 Tax return). The ATO will extend the period depending on when the work pattern will return to normal.

Conditions:

  • 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 don’t have to have a separate or dedicated area of your home set aside to work from, such as a private study.

 

Expenses included:

The shortcut method covers all additional 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 don’t have to incur all of these expenses to use the shortcut method, but you must have incurred additional running expenses in some of these categories when working from home.

If you use this method, you can’t claim any other expenses for working from home for that period.

 

Calculation

When you are calculating the number of hours you worked from home, you need to exclude any time you took a break from working, for example the time you spent to stop and eat your lunch or to assist your children with home schooling.

 

Total number of hours worked from home between 1 March and 30 June 2020 × 80 cents.

Substantiation:

You must keep a record of the number of hours you have worked from home. This could be a:

  • timesheet
  • roster
  • diary, or
  • similar document that sets out the hours you worked.

 

 

Place of Business (SOLE TRADER, PARTNERSHIPS, TRUSTS)

Where a taxpayer carries on part or all of his business at home, a wider range of deductions may be able to be claimed.

Where the home has the character of a place of business, the taxpayer may be able to claim a deduction for the occupancy expenses as well as the running expenses, to the extent they relate to their income producing activity. Occupancy expenses include:

  • mortgage interest or rent
  • council rates
  • land taxes
  • house insurance premiums

These expenses are apportioned on a floor area basis as follows:

= (Floor area used for business/Total floor area of the house)*expense

The running costs can be claimed in addition to the occupancy expenses. These can be claimed in the same manner as for home office expenses.

Running a business from home for the purpose of producing assessable income will adversely affect a claim for total exemption from capital gains tax on the sale of the home.

 

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