The phone vibrates. You comb your hair. You check your phone: Two minutes ’til Zoom. Just time to pour yourself a coffee, chuck your feet on your desk and smirk.
If you’re now working from home, you might be luxuriating in the advantages: no Opal fees, no spending $300 a month on overpriced chicken salads, no worries.
That’s great. But the extra electricity and internet you’re now using could be outweighing the couple hundred bucks you’re saving by not commuting.
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With the end of financial year looming, you really ought to get your money in order.
Why? Well, imminent global recession (even Warren Buffet ain’t spending right now) aside, although not spending $4.50 every day on coffee is good, not spending $4.50 a day on coffee and raking in money for the ‘depreciation’ of your laptop and desk chair is better.
How do you do this? You get your head around expenses. While this is a topic we have previously explored with Fernando Prieto, CA at Solid Partners Accountants & Advisors, we did this in the context of someone who usually works from the office.
These being unprecedented times, and with now, it seems, almost everybody (except those in essential services) working from home, we got Fernando on the phone to ask exactly what you can and can’t claim when working from home, specifically with those who have just started doing it in mind.
First up, Fernando told us the government has changed the system slightly to accommodate those working from home due to COVID. As the ATO website reads: “As the COVID-19 situation develops… We understand tracking these expenses can be challenging.”
“So, we will accept a temporary simplified method (or shortcut method) of calculating additional running expenses from 1 March 2020 until at least 30 June 2020,” the ATO advises. “We may extend this period, depending on when work patterns return to normal.”
This simplified method, Fernando explains, basically involves claiming 80c for every hour worked. According to him, this tends to be the easiest way for individuals who don’t normally work from home to make their claim.
Fernando concedes you might, depending on your circumstances be able to claim back more by using one of the other methods (mentioned later on in this piece), but the new system is the most straightforward (and was introduced with exactly this purpose in mind).
Essentially, you can add up all the individual claimable expenses via one of two options: fixed-rate or actual cost. Which is best for you? Fernando says “it all comes down to the documentation that you keep.”
“You’re not locked into claiming one way or the other – figure out which is most advantageous to you – keep a diary, do whatever it is you need to keep a record over at least a four week period.”
“Keep track of what you’ve been doing in March until June. If that’s working from 9-5 the whole time you then multiply that by 80c an hour (this fixed-rate used to be 52c, now it’s increased to 80c).”
On top of that, it’s a good idea to keep a record of business vs. personal phone calls etc, for when it comes time to claim your phone bill.
All that in mind, here’s your ultimate guide to what you can and can’t claim when working from home due to lockdown.
Claiming a deduction
To claim a deduction for working from home, all of the following must apply:
- You must have spent the money
- The expense must be directly related to earning your income
- You must have a record to prove it
- This means you can’t claim a deduction for items provided by your employer, or if you have been reimbursed for the expense
If you are not reimbursed by your employer, but instead receive an allowance from them to cover your expenses when you work from home, you must include this allowance as income in your tax return.
Expenses you can claim
If you work from home, you will be able to claim a deduction for the additional running expenses you incur. These include:
- Electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- Cleaning costs for a dedicated work area
- Phone and internet expenses
- Computer consumables (for example, printer paper and ink) and stationery
- Home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the full cost of items up to $300 or decline in value for items over $300.
Expenses you can’t claim
If you are working from home only due to COVID-19, you can’t claim:
- Occupancy expenses such as mortgage interest, rent and rates
- The cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work
Calculating running expenses
There are three ways you can choose to calculate your additional running expenses:
- Shortcut method ─ claim a rate of 80 cents per work hour for all additional running expenses
- Fixed-rate method ─ claim all of these; a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture; the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery and the work-related portion of the decline in value of a computer, laptop or similar device.
- Actual cost method ─ claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.
For more information, click here.
You can claim a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are:
- Working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
- Incurring additional deductible running expenses as a result of working from home
You also don’t have to have a separate or dedicated area of your home set aside for working, such as a private study, to claim using this method.
The ATO says the shortcut method rate covers all deductible running expenses, including:
- Electricity for lighting, cooling or heating and running electronic items used for work (for example your computer), and gas heating expenses
- The decline in value and repair of capital items, such as home office furniture and furnishings
- Cleaning expenses
- Your phone costs, including the decline in value of the handset
- Your internet costs
- Computer consumables, such as printer ink
- The decline in value of a computer, laptop or similar device
“You do not have to incur all of these expenses, but you must have incurred additional expenses in some of those categories as a result of working from home due to COVID-19,” reads the ATO guidance page.
“If you use the shortcut method to claim a deduction for your additional running expenses, you cannot claim a further deduction for any of the expenses listed above.”
You must also keep a record of the number of hours you have worked from home as a result of COVID-19 (e.g. timesheets, diary notes, rosters. etc).
The ATO adds “if you use the shortcut method to claim a deduction and you lodge your 2019–20 tax return through myGov or a tax agent, you must include the note ‘COVID-hourly rate’ in your tax return.”
Records you must keep
If you use the shortcut method, you only need to keep a record of the hours you worked at home, for example timesheets or diary notes.
If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses. For more information on what those records are see Home office expenses.
First up: the usual rules apply, which means you can apply the following techniques over the next few months to give yourself the maximum number of claimable expenses possible.
- Renew your (work-related) magazine subscriptions
- Pay the interest on your investment property
- Make a personal contribution into your super fund
- Donate to charity
- Invest in your business
- Get a new laptop
If you meet the requirements, all these expenses can be written off (at least partially) against your tax bill.