Drastic changes to the way we work has raised some loaded questions now that tax time has come. Keeping on top of tax rules means you won’t be missing out on any deductibles. Although it can be dry, learning about deductions means more money back into your pocket.
While working from home as an employee, you might be entitled to claim tax deductions for expenses incurred at home.
You should be asking, which expenses can I claim, and which can’t I claim?
Expenses You Cannot Claim
Firstly, let’s quickly go over the expenses you cannot claim while working from home as an employee.
The first thing many of us do when getting to the office is grab a morning coffee from the staff room. Many may say that without their morning coffee, they would not work as efficiently or productively. Whether that is true or not, unfortunately, the ATO does not allow refreshments, such as coffee, tea or milk as deductions for employees while working from home.
You cannot claim any expenses that your employer reimburses. For instance, if you have an arrangement where your employer is reimbursing you for mobile or home internet costs while you are working from home, you cannot claim these expenses.
Childcare and child home learning costs
For mums and dads, it has probably been a nightmare trying to focus while the kids are running amok at home. Unfortunately, childcare or child home learning costs are not tax deductible.
And finally, as employees, we generally cannot claim occupancy costs while working from home. These include rent, mortgage repayments, water, council rates and body corporate fees.
Expenses You Can Claim
While working from home you may be able to claim a portion of your home office running expenses. These expenses include:
- Electricity and gas for heating, cooling and lighting your home office;
- Depreciation of equipment (e.g. computers, laptops and/or tablets);
- Depreciation of furniture (e.g. desks and chairs);
- Telephone costs;
- Internet costs; and
- Office consumables such as stationery, printer paper and ink.
Expense Calculation Method
There are three ways to calculate your home office expenses. These are the shortcut method, fixed rate method and actual cost method.
Due to most of the Australian workforce now working from home, the ATO have recently introduced the new Shortcut method, to simplify how you calculate your deductions for working from home.
This method is temporary and only available until 30 June 2022.
Using this method, employees can claim a set rate of 80 cents per hour for each hour you work from home during that period. This will cover off all expenses you can claim as detailed above.
Using this method, you will not be required to keep record of any receipts. However, you will be required to keep a record of the number of hours you have worked from home. This could be a timesheet, roster, a diary or similar.
Employees working from home before COVID, ie before 1 March 2020 must use either the Fixed Rate or the Actual Cost Method.
Fixed Rate Method
Similar to the Shortcut Method, under the Fixed Rate Method employees can claim a set rate of 52 cents per hour for each hour they work from home. However, this method can be used for the entire year.
The 52 cents per hour only covers electricity and gas, depreciation of furniture and the cost of repairs to your home office equipment and furniture.
The 52 cent rate does not cover telephone, internet, consumables or depreciation of equipment. The work-related portion of these expenses can be claimed separately; however, you must keep record of the receipts.
Employees utilising this method must also keep a record of the number of hours they have worked from home. Or you can keep a 4-week diary to show their usual pattern of working from home and then apply that pattern for the rest of the year. Furthermore, employees are required to have a dedicated work area to utilise this method, e.g. a study or work desk. Common areas such as the kitchen bench or the dining table are not considered dedicated work areas.
Actual Cost Method
Finally, under the Actual Cost Method you can claim the actual work-related portion of expenses incurred while working at home. The work-related portion is generally calculated based on the floor area of your dedicated work area divided by the total floor area of your home. This portion is multiplied by the total costs incurred for the period.
You can use the method or methods that will give you the best outcome as long as you meet the eligibility and record keeping requirements for each method.
To ensure you maximise your tax deductions for the 2022 Financial Year, please contact your tax professional to calculate the best deduction for your individual circumstances. Please reach out to your Morrows advisor if you’re unsure about any of the above matters.