Working from home has become the new normal for many of us thanks to COVID-19, its associated restrictions and changes to the way we work. This means the expenses you can claim on your tax return are now very different to if you worked an entire year in your normal external office space; and it’s vital to get these claims right to maximise your possible refund from the Australian Taxation Office. Follow these expert tax return tips to make the most of your expenses this year.
Make Preparation a Priority
Maximising the amount you could claim back from the ATO comes down to preparation and good record keeping. “If you don’t have the paperwork, you can’t claim a deduction,” says Mark Chapman, Director of Tax Communications at H&R Block. Work-from-home claims will loom large this year due to COVID-19 and you can use the shortcut method set out by the ATO but it may not give you the biggest deduction, says Chapman. “Gather together all the information you’ll need to help you prepare your tax return, including invoices and receipts for work-related expenses,” he says. Of course, not everyone does this and often this results in a lower tax refund.
Figure out Which Method Is Best for You
When claiming working from home expenses, it’s all about working out which method applies to your circumstances and then determining which gives you the best outcome. To use a method you must meet the working criteria and record keeping requirements.
You can use the shortcut method, which was introduced from 1 March 2020 and has been extended to 30 June 2021. This is an all-inclusive rate of 80 cents for each hour you worked from home.
Or, if you have a dedicated work area, you could use the long-standing 52 cents an hour rate, which Chapman says excludes mobile phone, home internet, stationary and other consumables and the depreciation of IT equipment. “Because these items can be claimed separately – in addition to the 52 cents an hour – this usually gives a bigger claim,” Chapman says.
Your third alternative – the actual costs method – “generally produces a bigger deduction than either of the cents per hour methods but many people find the record keeping requirement associated with that method too tough,” says Chapman.
Whichever method you choose, there is some record keeping required, starting with having either a record of the number of hours actually worked from home for each method or the option to keep a diary for a representative four-week period to show your usual pattern of working from home (fixed rate method only). To claim individual items – such as power, cleaning, phone and internet use – you’ll need detailed bills, receipts and perhaps credit card payment records. You’ll also need to make sure you apportion these costs between private and business use. If you use the actual costs method, you can claim immediate deductions for equipment valued up to $300.
You’ll Need to Apportion Expenses Correctly
If you use an item, such as a mobile phone or a printer, for both work and personal use, you need to apportion the cost between the two, no matter whether you’re claiming an immediate deduction or depreciating the asset. For example, if you buy a printer for $295 which you use 80% of the time for work and 20% for private use, you can claim an immediate deduction for $236. Be aware there are some items you can’t claim under any of the three methods. These include items relating to children and their education, reimbursed items (ie: expenses that your company pays for), occupancy costs such as mortgage and rent, and things like tea or coffee for your working-from-home kitchen.
Generate Additional Deductions
If you prepare ahead of the end of the financial year, you can generate some additional deductions, says Chapman, that will give your tax return a welcome boost. These tax return tips include:
- Paying any professional or union fees due June 30 to claim the deduction for the whole amount this year.
- Charitable donations over $2 are deductible as long as you have a receipt, and the charity is registered as a deductible gift recipient.
- If you have some spare cash, you could make a personal contribution into your super fund, provided this doesn’t mean you’ll exceed $25,000 for the year (including employer contributions). “This can be a great way to boost your retirement savings and claim a tax deduction. The payment must be made by June 30 and you need to advise your super fund that you’ve made the payment by the time you lodge your return,” says Chapman. You can find a standard form on the ATO website.
Understand Taxable Expense Changes for the Financial Year
While there have been no significant changes to what can be claimed for 2020-2021, it’s worth noting that many people are now claiming Personal Protective Equipment (PPE), an expense that wouldn’t have been commonly claimed pre-COVID. “Workers in an occupation that requires physical contact or proximity with customers or clients during the COVID-19 period can claim a deduction for items such as gloves, face masks, sanitiser and antibacterial spray,” says Chapman. “Relevant claimants could include those in industries such as healthcare, retail, hospitality, beauty and hairdressing.”
To claim a deduction, you must have paid for the PPE item yourself. You can’t claim a deduction if your employer reimburses, pays for or provides these items. The PPE must protect you from both the real and likely risk of illness or injury while performing your work duties.
Another significant change, Chapman says, is that the ATO approved an increase in cents per km for work-related motor vehicle use, from 68 cents per km to 72 cents per km from July 1 2020.
Ensure JobKeeper and JobSeeker Details Are in Order
Both JobKeeper and JobSeeker are included as part of your tax return and are taxable, says Chapman. “JobKeeper is basically treated as part of your wage or salary and your employer would have deducted tax in the normal way from each payment.” For JobSeeker payments, “Centrelink does not automatically deduct tax, but will do so if you ask them to,” says Chapman. “If you think your total income will exceed the tax-free threshold ($18,200), it is worthwhile getting them to deduct tax to avoid an unpleasant lump sum tax bill arising when you lodge your return.”