Work from Home Tax Deductions

COVID-19: Tax And Working From Home – Everything You Need To Know

Updated April 28th 2020

Working from home has become the new normal for many office based businesses during the coronavirus pandemic, which means more employees than ever may be able to claim for home office expenses when tax time comes around.

Thankfully, the Australian Taxation Office (ATO), has announced special arrangements this year to make it simpler for taxpayers to claim work from home deductions due to COVID-19. This new arrangement will allow you to claim a rate of 80 cents per hour for all home office running expenses from 1 March 2020 up to a least 30 June 2020, rather than needing to meticulously keep record of all specific running expenses.

What you can claim

You may claim the following expenses when you work from home:

  • electricity expenses for heating, cooling and lighting from the area which you are working and running items for work
  • cleaning costs of your dedicated work area
  • partial phone and internet expenses
  • computer consumables and stationary, i.e. printer paper and ink
  • home office equipment such as computers, printers, phones, furniture and furnishings of either full cost of items up to $300, or a decline in value for items over $300.
What you can’t claim

You will not be able to claim the following expenses if you are working from home due to COVID-19:

  • Occupancy expenses such as mortgage interest, rent and rates
  • General household items such as coffee, milk, tea

Note that for some of the items you can claim, you are required to have a dedicated work from home area. Generally, if you work at home and do not have a dedicated work area, you will not be entitled to claim running expenses or it will be at minimal.

How to calculate your expenses

There are three methods you can use: The shortcut method, the fixed rate method or the actual cost method.

The Shortcut Method

The Shortcut Method has been recently introduced to help simplify tracking and calculating deductions for those that have been working from home due to the coronavirus pandemic. With this method, you can claim your expenses starting from 1 March 2020 until at least 30 June 2020. This period may be extended depending on when work patterns will return to normal.

With the Shortcut Method, you can claim a deduction of 80 cents for each hour you work from home as long as you meet the following requirements:

  • you are working from home to fulfill your employment duties
  • you are incurring additional deductible running expenses as a result of working from home

With this method, a dedicated work area is not required as the shortcut method covers all deductible running expenses.

However, you will not be able to claim a further deduction on your additional running expenses.

To claim with the Shortcut Method, you will need to keep a record of how many hours you have worked from home which can be tracked using either time sheets or a diary.

The Fixed Rate Method

With the Fixed Rate Method, you can claim a deduction of 52 cents for each hour you work from home instead of tracking down every single expense for heating, cooling, lighting, cleaning and decline of furniture.

With phone and internet, computer consumables and stationary expenses, you will need to separate the work related portion from the actual costs. This also applies for any decline in value on computers or other equipment.

Keeping a spreadsheet with expenses per month and copies of your bills will make it easier and less stressful when tax time comes around.

The Actual Expenses Method

If you have a dedicated work area at home, such as a study or home office, you can claim additional running costs and decline in value of furniture used for your work.

In order to claim actual expenses, you will need to:

  • Keep a record of number of actual hours you work from home during the income year
  • Keep a diary for a representative four-week period to show your usual work from home pattern
  • work out the decline in value of depreciating assets, the percentage of the year you used those for work and keep the appropriate receipts
  • work out the cost of your cleaning expenses and the appropriate proportion for your work area
  • work out the cost of your heating, cooling and lighting by working out the cost per unit of power used for work

You will also have to take into account if any household members use the home office and, if so, apportion your expenses accordingly.

Again, keeping a good record and all bills/receipts will make processing your claims hassles free when when doing your taxes.

So, whether this is a one time thing only or something you decide works longer-term, knowing your options for claiming deductibles means that you can apply the best method for your situation.

If you require help with your work from home deductions for this coming financial year, and/or you are not sure which is the most suitable method for you, contact with your Adviser or reach out to CIB for advice.