Tax entitlements now that your working from home

Due to the recent COVID-19 impacts, many people are now working from home and finding themselves buying new desks, stationery, computer screens and computer devices. So, did you know that when working from home you may be entitled to claim deductions in your 2020 income tax return?

We have prepared a summary to help you understand what you’re entitled to, and outlined what information you may require for your 2020 income tax return, to ensure your claims are supported by the correct documentation – we hope this helps! 

Three key expenses you may be able to claim are:

  • Running Expenses
  • Phone and Internet Expenses 
  • Occupancy Expenses

Running Expenses 

If you are working from home, you will be able to claim the work-related proportion of your home running expenses. These are: 

  • Home office equipment such as your computer screen, computer, printers and desk among others. You can claim as follows: If it’s less than $300 per item, then you will be able to claim in that year. If it’s more than $300 then you will be able to claim it over a period of time.
  • Heating, cooling and lighting.
  • The costs of repairs to your home office equipment, furniture & furnishings. 
  • Cleaning costs.
  • Other running expenses such as printer paper, ink and stationery. 

Calculating your running expenses: 

You can choose between the following three ways to calculate your running expenses: 
– Fixed rate of 52 cents per hour*;  
– Actual running expenses
– Fixed rate of 80 cents per hour (only applies for the period 1 March 2020 to 30 June 2020)*;
* 52 cents per hour method and 80 cents per hour method automatically include different expenses, see the detail below for these.

Fixed Rate of 52 cents per hour 

This method is the one most people use, and it includes all expenses. The expenses covered are as follows:

  • Heating, cooling & lighting
  • Cleaning
  • Declining in value for furniture

For example, if you worked home for 20 hours per week for the whole year, it would be calculated as 20 hours times $0.52 times 48 weeks = $499.20. You will be able to include this amount in your tax return.

Record to be kept:

You will need to have a four-week work diary (for example, this can be your outlook calendar) and have the following detail included:

  • Date 
  • Time start, break and finish time 
  • The work activity

Please note: If the hours you work at home is changing all the time, then you will might need to keep a diary for the whole period you work at home, as the four-week diary might not be reflective of the actual hours worked.

Actual Running Expenses 

If you have a dedicated work area, you can claim additional running costs and the decline in value of office furniture used in the area for work purposes. 

This method is rarely used as you need to keep records of all your bills and apportioning the percentage of time vs personal time. You will need to work out what floor area relates to the home office as a percentage of your total floor area. 

The tax office provides a calculator to assist with the calculation of the actual expenses, link below:

Home Office Calculator

Fixed Rate of 80 cents per hour

This method has just been introduced by the ATO in response to the coronavirus pandemic and is valid only for the period 1 March 2020 to 30 June 2020.

It covers the following expenses:

  • Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
  • Cleaning costs for a dedicated work area.
  • Phone and internet expenses.
  • Computer consumables (e.g printer, paper and ink) and stationery.
  • Depreciation of home office furniture and furnishings ( e.g. and office desk and a chair).
  • Depreciation of home office equipment ( e.g. a computer and a printer).

 Record to be kept:

You will need to keep record for the period 1 March 2020 to 30 June 2020 (this can be outlook calendar if used) and have the following detail.

  • Date
  • Time start, break and finish time
  • The work activity

You will be able to use the fixed rate of 52 cents per hour for the period prior to 1 March 2020. Please note that you will need to keep a separate diary for the period prior. Keep things dated clearly.

Phone and Internet Expenses 

If your claim is under $50 you can estimate the number of works calls you make and do a basic calculation. The rates you use to work out the cost of your work calls are: 
– $0.25 for calls made from your landline 
– $0.75 for calls made from you mobile 
– $0.10 for text messages sent from your mobile 

The other approach is the actual expenses, but you will need to keep a four-week diary documenting the work usage of your phone and internet. 

You need to work out the percentage using a reasonable basis. This could include: 
– The number of calls made as a percentage of total calls 
– The amount of time spent on work calls as a percentage of your total calls 
– The time you spent or date used for work purposes compared to your private usage and that all members of your household. 

Record to be kept: 

  • Diary for a four-week period to show your usual pattern of working at home. 
  • Itemised bill (with work call % calculated )

Occupancy Expenses

Employees are generally not able to claim occupancy expenses. This method may have CGT implications. Occupancy expenses include: 

  • Rent 
  • Mortgage interest 
  • Property insurance 
  • Land taxes 
  • Rates. 

You can only claim the work-related proportion of your occupancy expenses in two very limited circumstances where: 

– The space in the home is a place of business, and not suitable for domestic use, for example, a doctor or dentist surgery or a hairdresser studio in the home 
– No other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer’s business as an office – you can claim the portion of these costs that relate to a clearly identified place of business. 

If you claim occupancy expenses, you don’t qualify for the capital gains tax (CGT) main residence exemption for the part of your home that you use for work. If you use your home as a place of business there may be CGT implications when you sell it. 

When you prepare your 2020 tax return documentation, please bring the information collected above relevant to what you wish to claim, and your Highview Accountant can help to select the best claim method to be used, to ensure you claim all your relevant entitlements.

Article written by Avi Gopala, Client Services Manager / CA, Highview Accounting & Financial Cranbourne.