Tax deductions whilst working from home – what can you now claim?

With many of us working from home due to COVID-19, it’s important to understand the tax deductions you may be entitled to.

What tax deductions can I claim

Many Australians transitioned to working from home as COVID-19 escalated earlier this year.

According to a recent report, 4.3 million Australians have been working from home during the pandemic. Because of this shift, many people who are working from home may be entitled to claim tax deductions when filing our tax return for the 2019/20 and 2020/21 financial years.

Here’s what it might mean for you.

What tax deductions can I claim working from home?

There are three ways to claim your home office running expenses, according to guidance from the Australian Taxation Office1.

The actual cost method

Under this method, your tax deductions include the actual costs of work-related expenses. This applies to things such as the costs of your home office furniture and fittings, as well as equipment such as computers and desks. If the cost of depreciable home office items is less than $300 you may claim the full cost of these items as a tax deduction. If the cost of depreciable home office items is over $300, you may claim a deduction for the depreciation of these items.

If you regularly phone your employer or clients while you are away from your usual place of work, you can also claim a full tax deduction for the work-related portion of the phone calls you make at home and the cost of renting your phone.

Other costs you may claim a deduction for under the actual cost method include:

  • Internet access charges.
  • Printer and printer cartridges.
  • Stationery.
  • The cost of heating, cooling and lighting your home office, over and above the amount you would ordinarily pay if you did not work from home.
  • Any repairs to your home office furniture and fittings.

As your home isn’t considered to be a place of business, you can’t claim non work-related expenses under this method. This includes rent, the interest you pay on your mortgage and the cost of any insurance premiums.

The fixed cost method

Under this method, instead of tax deductions relating to the work portion of costs incurred at home, you can claim a rate of 52 cents per hour for expenses such as heating, lighting and cooling at tax time. You can also apply the same rate when claiming a depreciation of home expenses, for example any furniture you’re now using in your home office.

The shortcut method

At the moment a special method, known as the shortcut method, is available to people working from home to claim work-related expenses as tax deductions. Please note however, that the special rate is only available from 1 March 2020 to 31 December 2020.

Under this method, each person in a household can claim expenses based on a rate of 80 cents an hour. So more than one person in a household – flatmates or members of the same family – can each claim a deduction for their expenses incurred that directly relate to working from home. But it’s important to keep a log of the hours you work.

The 80 cents per hour shortcut method seems like an easy way to work out your home office expenses come tax time. However, the risk for people using this method is that they won’t claim as much as they are entitled to under the other two methods. You also can’t claim the cost of equipment such as webcams and office furniture, as well as stationery or computer consumables like printer cartridges.

Whichever method you choose, it’s a good idea to keep accurate records of all your actual expenses, plus the hours you have worked. That will allow you to choose the best method when you or your tax agent prepares your tax return.

What records do you need to keep?

Whichever method you choose, it’s really important to keep an accurate record of all the expenses you incur while working from home in whatever way works best for you. You could choose to use software or a spreadsheet to store these records, which could help to organise information for tax purposes. This is up to your discretion.

You can’t claim the cost of coffee, tea, milk and other general household items your employer may otherwise have provided at work while you are working from home. You can only claim the cost of cleaning a dedicated work area if you usually work from home. It’s a good idea to check with an accountant or registered tax agent if you are unsure on what you can and cannot claim as tax deductions in the 2019/20 financial year.

In summary…

Tax time can be complex, so it’s a good idea to talk to your tax adviser to ensure you’re claiming all the correct tax deductions. The ATO has information on expenses you can claim and it’s worth checking this resource before you file your tax return.

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This information is current as at 15 October 2020. 

This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website.  BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of superannuation can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.