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So many of us work from home now. This guide explains the tax deductions you could claim, and what you can’t, so you can avoid mistakes and maximise your refund.
Many Australians – including business owners – are having their first taste of working from home full-time due to COVID-19. In recent research commissioned by Officeworks, some 82% of respondents said their business had been affected by the coronavirus crisis. Around 25% of SME business owners said their businesses had been impacted specifically by the need to stay safe and work from home. The work-from-home trend is also not expected to lift anytime soon – according to another survey, this one commissioned by the NBN, 67% of home workers say they expect to work from home more after this is all over. So, if working from home is your new normal, it’s important to know what tax deductions you might be able to claim from the taxman.
You’ll want to make sure you get everything you’re entitled to but if you’re claiming working-from-home expenses for the first time, be aware, it’s easy to make mistakes. And even if you’ve claimed before, there are big changes this year. One major difference is that eligible SMEs, including sole traders, will be able to take advantage of a dramatically increased instant asset write-off, up from $30k to $150k for assets first used or installed ready for use from 12 March to 30 June 2020. How to take Advantage of the Instant Asset Write-Off
A simple way for individuals to approach your work-from-home tax deductions is to consider adopting the temporary shortcut arrangements the federal government has put in place. This allows Australian taxpayers working from home to claim a rate of 80 cents an hour to cover their running expenses for work done between 1 March and 30 June 2020.
If you worked from home before March 1, any deduction for that time will have to be calculated according to the pre-COVID-19 shortcut of 52 cents an hour plus some other work-related expenses or an actual expenses method, which requires more extensive record keeping.
The Australian Tax Office (ATO) is on the lookout for errors because it says work-related expenses claimed by employees remain the main contributor to the net tax gap (the difference between the amount of tax the government is entitled to compared with how much they actually receive), making up 48% or $4 billion. Common mistakes made in claiming work-related deductions include:
If you adopt the 80 cents an hour rate for the four months it's available, the ATO only requires you to record the number of hours you worked from home as evidence of your claim. But that means it’s important to keep timesheets or diary notes. For work-from-home tax deductions at other times, you’ll need a four week-representative journal of the hours you normally work from home.
If you opt to use the shortcut method, it's important to remember that you cannot claim additional expenses. You also wouldn’t be able to claim expenses that your employer has reimbursed you for, for example, if they supply your stationery or pay for the cost of your internet or mobile phone.
If you are working from home only because of COVID-19, you can't claim occupancy expenses. You could only possibly claim this if the area of your home you regularly work in has the character of a place of business, such as a hairdresser’s salon, or a dedicated office with its own entrance, and even these can be difficult to prove. Bear in mind, if the ATO accepts you have such a space in your own home and allows appropriate tax deductions, such as a portion of your mortgage interest, you may also lose part of your main residence exemption for capital gains tax (CGT) when you sell the property.
If you don’t adopt the shortcut method, or you are claiming for working-from home outside the four-month COVID-period, you are only able to claim the portion of the cost of your internet and phone usage that is work-related. To enable you to calculate this, the ATO suggests it’s easier to have an itemised bill so you can work out your percentage of work use over a representative period and then apply this to the full year.
While it may not seem much, 80 cents an hour over four months adds up. And if you and your partner are both working from home, you are both able to claim. Based on two people working 35 hours a week, that could amount to nearly $1000 for 17 weeks.
If you regularly work from home, you may be best off using the actual expenses method to determine your claim. This involves keeping a diary to record the work portion of household running expenses over a representative period. You would also need to keep documentary evidence of the specific costs incurred. The home office expenses calculator on the ATO website will help you decide what method gives you the biggest tax deduction.
This is general information only and does not constitute taxation or legal advice. Other requirements under the tax law apply. Seek professional tax and/or legal advice to determine whether you are eligible to claim a deduction for any purchases.