Q: What am I eligible to claim on my tax return as a result of working from home due to COVID-19?
A: With many individuals having to work from home as a result of COVID-19, there may be a range of costs associated with creating a home office and working from home that you could be entitled to claim.
Generally speaking, you can claim the full value of small items such as stationery up to $300 as a tax deduction or depreciate the value of higher valued assets over a certain amount of time. This can include items such as desks, chairs, computers and general office equipment. You can also claim back the cost of keeping your workspace clean, repair costs and consumables such as paper and printer ink.
Note employees working from home are not entitled to the instant asset write off where eligible businesses can immediately claim a tax deduction of up to $150,000 for the business portion of the cost of work related assets in the first year they are used.
Personal expenses like food and drink are generally not claimable as they are still regarded as discretionary expenses. You can’t claim a deduction for the cost of a coffee if you grab one on your break at work. This is because you’re technically are not incurring any additional expenses. You would still have to eat lunch regardless of being at home or at work.
Obviously if you have been reimbursed for work related expenses by your employer, you cannot also claim these personally. For example, if your employer buys you a laptop, you cannot claim depreciation on this item. Nor can you claim expenses related to supervising your children’s education and online learning from home.
It is a good idea to log your home working hours and any costs you have incurred in a diary. Always retain copies of your work related expenses and receipts. This makes life much easier when preparing your tax return or if you are asked to verify any claim.
You can claim utilities costs such as energy and phone for the work-related portion of your household expenses.
The ATO announced special arrangements this year due to COVID-19 to make it easier for people to claim deductions for working from home. The new arrangement will allow people to claim a rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses. You will however be required to keep a record of the number of hours worked from home.
Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate. The requirement to have a dedicated work from home area has also been removed.
The new shortcut arrangement does not prohibit people from making a working from home claim under existing arrangements, where you calculate all or part of your running expenses.
Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method, and must use the pre-existing working from home approach and requirements. The ATO will review the special arrangement for the next financial year as the COVID-19 situation progresses.
Q: Can you explain the types of methods I can use to calculate my deductions for working from home during COVID-19?
A: According to the ATO website, there are three methods available when determining your deductible expenses when working from home due to COVID.
The shortcut method is the simplest method for calculating deductions for working from home. Under this method, you can claim 80 cents per hour for each hour you work from home during the period 1 March – 30 June 2020.
This method works for you if you are working from home to fulfill your employment duties and have incurred additional running expenses as a result of working from home.
It is important to note that this shortcut method also covers your phone, internet utilities and depreciation. If you use this method, you can’t “double dip” by claiming any other expenses for working from home.
This method is temporary and only available for the period, 1 March to 30 June 2020.
The fixed rate method lets you claim a deduction of 52 cents for each hour you work from home for the additional work related expenses you incur. This method covers all expenses you incur for utilities and the cost of repairs to home office equipment and depreciation.
To claim using this method, you must keep records of either your actual hours spent working at home for the year or a diary for a representative four-week period to show your usual working patterns.
To use this method, you need to have a dedicated work area, such as a home office when you work from home. It’s also worth noting that the fixed rate method doesn’t include phone, internet, computer and stationery, so these will need to be separately calculated.
The actual cost method allows you to claim the additional running costs you directly incur as a result of working from home, including; stationary, utilities, internet and phone expenses, depreciation and cleaning but only if you use a dedicated area for work.
For this method, it’s important to remember that if you don’t have a dedicated work area or room, you generally will only incur minimal additional running expenses. For example if you’re working from a common area at home such as the dining room or lounge room that other members of the household are using at the same time, you won’t be incurring any additional costs.
As with the other methods, make sure you keep a diary to keep track of your hours worked at home and all costs and capital expenses. You also will need to work out the cost per unit of phone, electricity and other utilities.
Make sure you take into account other members of your household when you work out your expenses, if another member of your household is using the same area of the house or same service, you’ll need to apportion expenses accordingly. If you’re claiming a deduction for an asset that cost $300 or more, you need to calculate the decline in value for the period you owned the assets during the income year and proportion this cost between the time you used the assets for personal use and working from home purposes.
Speak with your tax adviser to ensure you understand your entitlement and are following ATO requirements.