If you’re an employee who works from home, you may be able to claim a deduction for your working from home expenses.
2020 brought about many changes due to the worldwide coronavirus pandemic. One of the most predominant changes was seen in the work industry – many employees had to alter their work arrangements so that they could safely work from home.
Recent research showed that in November 2020, around two in five employees (about 42% of Australia’s workforce) worked from home. This is only a slight decrease from the 46% who were working from home in April when COVID-19 was at its peak.
For many, having a home office has become the new normal.
But what does this mean for your tax return? Many people aren’t aware that one of the upsides of having to work from home is that you may qualify to claim a deduction for some of the expenses you incur at your new home office.
So what tax deductions are you entitled to claim? And how do you calculate your work-related expenses?
We’ve put together a list of working from home deductions you can claim.
- 1 Who Can Claim Home Office Expenses?
- 2 What Working From Home Deductions Can You Claim?
- 3 What Working From Home Deductions Can’t You Claim?
- 4 How Do You Calculate Working From Home Deductions?
- 5 Key Takeaways
Who Can Claim Home Office Expenses?
Before delving into the list of working from home expenses you can claim a deduction for, it’s necessary to establish whether or not you meet the eligibility criteria.
An individual employee can claim work from home deductions if they:
- are claiming for work-related expenses;
- have spent their own money incurring the costs (as opposed to their employer incurring the expense); and
- have kept all necessary records as evidence of their claim.
It’s easy to get confused with expenses that small business owners with home offices can claim, so check out our home office expenses guide to ensure you know the difference.
What Working From Home Deductions Can You Claim?
If your home is not a place of business; in other words, you are merely acting as an employee working from a home office; then you are generally limited to claiming running expenses only.
Here Are 6 Home Office Running Expenses Can You Claim:
- heating, cooling and lighting;
- electricity and gas;
- phone and internet expenses;
- cleaning costs;
- stationary consumables such as printer ink, paper and pens;
- depreciation (the decline in value) on home office equipment such as computers, furniture and printers.
What Working From Home Deductions Can’t You Claim?
Unlike business owners who operate their businesses at home and have a dedicated work area, you generally can’t claim occupancy expenses, such as
- interest on your mortgage;
- capital gains tax;
- water rates;
- land taxes; and
- home insurance premiums.
How Do You Calculate Working From Home Deductions?
Due to the increase in people working from home this year, as a result of COVID-19, the ATO introduced a temporary shortcut method to make it easier for employees to claim a deduction for the home office expenses incurred while working from home.
Claiming via this method is temporary and only available from 1 March 2020 until 31 December 2020.
What Is The Shortcut Method?
The shortcut method allows individuals who worked at home to claim 80 cents per hour for all their running expenses over the number of hours they worked.
For the 2019-20 income year, you can claim a deduction for home office expenses between 1 March and 30 June 2020; and for the 2020-21 income year, you can claim a deduction for your home office expenses incurred between 1 July and 31 December 2020 on your tax return.
While it’s not mandatory to use this method, if you do, you should take note that you won’t be able to make separate claims for any additional expenses incurred while working at home.
Make sure to keep a record of the number of hours you worked from home in the form of a roster, timesheet or a diary so that you have evidence of the expenses incurred when submitting your tax return.
Lisa is an administrative assistant at a small tech company in Hobart.
While strict lockdown measures were in place, Lisa was required to work from home.
Lisa worked in a dedicated work area for a total of 38 hours a week for about 15 weeks between 1 March and the end of June. To keep things simple, she decided to take advantage of the temporary shortcut calculation method to claim her working from home deductions for rest of the 2019-20 income year:
38 hours x 15 weeks = 570 hours
570 hours x 80c = $456
Using the shortcut method, Lisa can claim working from home deduction on a total of $240 for her home office expenses for the 2019-20 income year.
The Fixed Rate Method
Originally, if you’re an employee who works from home, the fixed-rate method is the typical way of calculating your working from home tax deductions.
Under the fixed-rate method, the ATO allows you to claim a fixed rate of 52 cents per hour for each hour that you work from home to cover the costs of your running expenses such as:
- depreciation (i.e. the decline in value) on home office furniture such as your desk;
- electricity and gas; and
- the cost of repairs of your home office equipment, furniture and furnishings
You can’t, however, use the fixed-rate method to calculate your tax deduction for the following expenses:
- phone and internet expenses;
- consumables such as printer ink and paper;
- internet expenses; and
- the decline in value (depreciation) of equipment such as laptops, computers and phones.
Instead, you can submit a separate claim for the work-related portion of these expenses. For example, if computer consumables are used 80% of the time for work purposes while you are working from home, you can claim a deduction, at 52 cents per hour amounting, to 80% of the actual cost of the consumables.
Due to the worldwide changes brought about by the coronavirus pandemic; many employees have had to fundamentally change the way they work and more specifically, where they work.
Statistics have shown that nearly half of Australian employees are working from home, so it pays to know about tax deductions you could claim.
As an employee, you are eligible to claim any running expenses incurred while working from your new make-shift home office – be it at the dining room table or even on the couch.
Thankfully, the ATO introduced an effective temporary shortcut method to help employees calculate their working from home tax deductions.
However, if this is entirely new to you and you are looking for some guidance, our team of tax experts at Box Advisory Services can help you navigate through changes brought by the COVID-19 pandemic and beyond.
Given that every cent counts in a distressed market, our focus is on ensuring that you’re maximising every dollar you can when completing your tax return. To see how we can help you calculate your working from home deductions, book a free consultation with us today.
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Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek a second professional opinion for any legal or tax issues raised in your business affairs.