Welcome to our Friday Tax Tip
It’s getting to the Tax time of year again! Given the confusion that came along with COVID-19, things may be overwhelming and confusing. Today we cover in our Friday Tax Tip more on the working from home topic and what you can and cant claim on your Income Tax Return when you have been working from home.
Understandably 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.
Tracking these expenses can be challenging, so from 1 March to 30 June 2020, the Australian Taxation Office have introduced a temporary shortcut method. It’s a simple way to calculate these expenses with minimal record keeping requirements. This may be extended, depending on when work patterns return to normal.
In most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.
Claiming a deduction
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 can’t 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 for the expenses you incur.
For more information about working from home prior to 1 March, or the other methods you can use to calculate your working from home expenses, visit Home office expenses
Expenses you can claim
If you work from home, you will be able to claim a deduction for the additional expenses you incur. These 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
- 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
- full cost of items up to $300
- decline in value for items over $300.
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
- items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone.
- 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, water and rates.
Calculating your expenses
There are three ways of calculating home office expenses depending on your circumstances. The methods are the:
- Shortcut method (80 cents) – only available 1 March to 30 June 2020
- Fixed rate method (52 cents)
- Actual cost method
You don’t have to use the shortcut method, one of the other existing methods to calculate your deductions can still be used. As long as you meet the criteria and record keeping requirements for each method, you can use the method or methods that will give you the best outcome. For information and examples on how to calculate your expenses prior to 1 March or to use the fixed rate or actual cost methods, see Home office expenses.
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 don’t have to have a separate or dedicated area of your home set aside to work from, such as a private study.
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.
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.
You can calculate your deduction for additional running expenses using the shortcut method, with this formula:
- Total number of hours worked from home between 1 March and 30 June 2020 × 80 cents.
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 also choose to use one of the existing home office expenses methods to calculate your deduction, see Home office expenses.
Records you must keep
We include in our Friday Tax tip some information on what records you must keep. You must keep a record of the number of hours you have worked from home. This could be a:
- diary, or
- similar document that sets out the hours you worked.
If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses. For more information on what those records are see Home office expenses.
The team and Gerard Wilkes & Associates are here to help. For more of our Friday Tax Tip articles and if you require assistance with your upcoming Income Tax Return please contact us at:https://www.wilkes.com.au/contact-us/ or give us a call on 07 5532 1733.