Working from home tax deductions simplified.

Since the outbreak of COVID-19, more Aussies are working from home than ever before. Not only does this mean no more early commutes and the potential to stay in tracksuit pants all day, it also has potential tax benefits.

The Australian Taxation Office (ATO) recently announced the introduction of a new shortcut that will make it easier for people to claim tax deductions for working from home.

This shortcut applies to sole traders, small businesses and people who have had to switch to remote working due to the pandemic.*

How does the working from home shortcut work?

From 1 March until 30 June, the ATO will allow people to claim a flat rate of 80 cents for every hour of work they do from home due to COVID-19. To claim the deduction, you must be:

  • Working from home so as to fulfill your normal job duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls;
  • Incurring additional running expenses as a result of working from home.

You don’t have to have a separate area of your home set aside for work to use the shortcut method.

The shortcut method covers all deductible running expenses, including:

  • Electricity for lighting, cooling or heating and running items used for work (e.g. your computer), and gas heating expenses
  • Phone and internet costs
  • Computer consumables, such as printer ink and paper
  • Stationery
  • The decline in value of a computer, laptop or similar device
  • The decline in value of work-related items such as home office furniture and furnishings
  • Cleaning expenses

If you use the shortcut method based on hours worked from 1 March until 30 June, you can’t claim additional deductions for running expenses.

Example:

Joe works from home for 7.5 hours a day. As such, he is eligible to claim $6 (7.5 hours x $0.80) in working from home deductions per day.

Over the four-month period from 1 March to 30 June, he can claim $510 (85 weekdays x 7.5 hours x $0.80), assuming he works 7.5 hours a day, five days a week during that period.

RELATED: 6 tips to maximise your small business tax return.

Other ways to claim a deduction.

Depending on your circumstances, it may be more tax-effective to calculate and deduct your working from home expenses using one of the ATO’s other accepted methods:

Fixed hourly rate method.

Like the shortcut method, with the fixed hourly rate method you can claim a flat rate of $0.52 per hour for every hour worked from home. This flat rate only covers electricity, heating and cooling, cleaning and depreciation of home office furniture.

For other expenses like computer devices, stationery, phone or internet expenses or depreciation of a computer, you’ll need to manually calculate the work-related portion of expenses and keep a diary of your hours worked.

For example, if you use your mobile phone 50% of the time for work and 50% of the time for personal reasons, you would claim 50% of your phone bill as a deduction.

Actual expenses method.

If you have a dedicated home office or work area at home, you can also choose to manually calculate the work-related portion of all your running expenses, including:

  • Electricity for lighting, cooling or heating and running items used for work (e.g. your computer), and gas heating expenses
  • Phone and internet costs
  • Computer consumables, such as printer ink and paper
  • Stationery
  • The decline in value of a computer, laptop or similar device
  • The decline in value of work-related items such as home office furniture and furnishings
  • Cleaning expenses

If you’re a sole trader or business owner and NOT an employee, you can also calculate and claim the work-related portion of occupancy expenses such as rent or mortgage payments.

RELATED: How to claim the small business tax offset.

Do you need to keep receipts?

If you use the shortcut method, you only need to keep a written record of the hours you worked at home, such as time-sheets or diary entries.

If you use the other methods mentioned above, you’ll need to keep a record of the number of hours you worked from home as well as receipts and records of your expenses.

What if you worked from home before 1 March?

You can only use the shortcut method to claim deductions on working from home expenses incurred between 1 March and 30 June.

If you were working from home before then you’ll need to use one of the other calculation methods outlined above for the period prior to 1 March.

How to get prepared now.

Remember you’ll need to have a written record of your hours worked if you plan to use the shortcut method at tax time, so it’s a good idea to update your records as soon as possible.

Also consider seeking advice from a tax advisor or accountant who can offer guidance on the best approach to claiming working from home tax deductions for your situation. Find out more about the ATO’s working from home shortcut here.

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*We endeavour to provide accurate material for Australian businesses consistent with Australian tax laws; however, this material is for reference only and is not designed to be, nor should it be regarded as professional advice.

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