What Tax Deductions Can You Claim When Working From Home?
Work| By Stuart Ridley | May 14, 2021
Whether you’re new to working from home or your home office is well-established, it pays to know what tax deductions you could claim – and how to calculate them.
While many people have had to adjust to working from home thanks to the COVID-19 (coronavirus) epidemic, the good news is you may be able to claim some of your additional running costs as a tax deduction.
The Australian Taxation Office (ATO) is well ahead of the curve here with updated advice on the rules for employees who have not yet returned to the workplace compared to people who have setup and run a business from a dedicated area of their home.
Here’s a summary of what could be claimable and ways to calculate your tax deductions while you work from home.
Which Remote Working Expenses Might Be Claimable?
There are several methods, as outlined below, that you can use to claim your working-from-home expenses. Once you have worked out which method both applies to your circumstances and gives you the best outcome, you can then look at adding in claims for expenses not covered by your method. When considering each claim, the big question the ATO asks is “How much of this expense is work related?” So, if the expense is eligible, you may be able to claim the work-related proportion for:
1. Running Expenses
- Electricity (lights, power for equipment, heating/cooling)
- Home office equipment and furnishings (including repairs)
- Stationery and office supplies
Note: Depending on which method you choose, you may not need to have a dedicated work area to claim running expenses (see below for update).
2. Phone and Internet Expenses
- You may be able to claim a phone or internet deduction if you use your own phone and/or internet for work purposes.
3. Equipment Decline in Value
- This is called depreciation and could be claimed for computers and other home office equipment and furniture. Equipment costs can be complex to calculate so ask an accountant to help. The costs of some tools, equipment and other assets could be claimed as immediate deductions (for items costing up to $300); others will depreciate over a few years.
The Golden Rules of Tax Deductions for Home Office Expenses
For an employee to claim a deduction for working from home:
- You can only claim expenses you’ve paid for – not for anything provided by your employer or if an expense has been reimbursed.
- It must be work-related – directly related to costs incurred while earning your income.
- You’ll need records to prove your tax deductions – and what records you need to keep will depend on which of the three deduction methods you choose.
How to Calculate Your Tax Deductions – if You’re an Employee
There are three ways of calculating home office expenses, depending on your circumstances.
1) 80 cents/hour Shortcut Method
A temporary all-inclusive rate of 80 cents for each hour worked from home was introduced in March 2020 and can be used to calculate your home office expenses for the entirety of the 2020-21 income year.
If you don’t have a dedicated home office space, you can claim this all-inclusive rate. It covers all your working from home expenses, such as electricity and gas, office supplies as well as phone and internet expenses and the decline in value of equipment and furniture. (The temporary shortcut method also applies to home-based businesses). But be aware, you can’t make further claims for any of these expenses. Talk with a registered tax agent about whether you might be able to claim more using the fixed rate or actual cost methods below instead.
Remember: You don't need to have a dedicated work area to use the shortcut method. However, you must keep a record of the number of hours you have worked from home. This could be a timesheet, roster or a diary that documents hours worked.
2) 52 cents/hour Fixed Rate Method
If you have a dedicated work area, such as a home office, you could choose this long-standing method which allows you to claim:
- Work-related portion of actual costs of communications (phones and internet) – you'll need records of all your bills.
- Work-related portion of actual costs of office consumables (paper, ink etc.) – you'll need records of these expenses.
- Work-related portion of decline in value of tech and other equipment (computers, printers, scanners etc.) – you'll need receipts for each item, plus decline in value calculations (this handy depreciation and capital allowances tool can help). Note: if an item costs more than $300, employees can only claim the decline in value of the item, not the whole amount, and only the decline in the work-related portion.
- 52 cents per work hour flat rate for additional running costs (electricity and gas, cleaning and decline in value of office furniture) – saving you having to calculate the work-related portion.
Remember: You'll also need records of your hours worked at home for the year or a diary for a representative four-week period to show your usual pattern of working at home. Talk with an accountant about ways to manage all your receipts and records.
3) Actual Cost Method
If your home has a dedicated work space or room and you're disciplined about keeping records, you could calculate the work-related portion for most or all home office expenses. The ATO has a home office expenses calculator and a depreciation and capital allowances tool to help you add it all up. Again, speak with an accountant about what you can and can't claim.
Tax Deductions for Home-Based Small Businesses
If you are running your own business from home, you may also be able to claim:
- Work-related share of occupancy expenses – rent, mortgage interest, insurance.
- Work-related share of motor vehicle expenses.
See a Tax Professional
This information is general and only summarises basic tax deductions relating to working from home. It does not take into account your individual circumstances. The ATO provides some calculators that may help you, though as tax is a complex subject, see a registered tax agent for individual advice.