With the increasing requirement to self-isolate to stop the spread of the coronavirus, millions of Australians have now chosen – or been mandated – to work from home for the foreseeable future. This means that many taxpayers will incur some additional expenses, including potentially the costs of fitting out a home office, and an increase in their utility bills caused by having the heating or cooling on during the working day when there is normally nobody home.
So, is it possible to claim a tax deduction for all these extra costs, and if so, how? Here’s my guide.
What can I claim?
If you work from home, you can claim for the work-related proportions of household costs such as:
- Heating, cooling and lighting bills
- Costs of cleaning your home working area (including cleaning products or payment for a domestic cleaner if required)
- Depreciation of home office furniture and fittings
- Depreciation of office equipment and computers
- Costs of repairing home office equipment, furniture and furnishings
- Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated)
- Computer consumables (like printer ink) and stationery
- Phone (mobile and/or landline) and internet expenses
Ideally, you should have a specific room set aside as a home office. If you are using a room with a dual purpose (e.g. dining room), or a room shared with others (e.g. lounge room) you can only claim the expenses for the hours you had exclusive use of the area.
How do I make a claim?
The easiest option is to claim the ATO’s flat rate allowance for working from home of 52 cents per hour. This covers the extra costs of heating, cooling, lighting and the decline in value of furniture. All you need to do to claim this is to keep a diary – note the time you start work each day, the time you finish work each day and any breaks. You can then claim 52 cents per hour for each working hour.
In addition, you can also make separate claims for the work-related proportion of items such as your home internet, mobile phone costs and other expenses that directly relate to your work such as stationery, printer ink and even additional toilet rolls that you wouldn’t otherwise have purchased if you were working from your normal workplace.
Another option is to claim the actual costs you’ve incurred. You’ll still need to keep a diary of your work from home hours and you’ll also need to work out the amount of your home (by floor area) that you’re using as your work space. From this, you can then work out the work-related proportion of your household expenses and apply this percentage to the actual amount you spend on electricity, gas, water, phone and internet, etc. You’ll also need to keep all the original bills to prove your claim.
This generally produces a bigger claim than the 52 cents flat rate but the amount of paperwork and calculation involved is much greater. You should use a tax agent to help with your claim if you intend to use this method. In addition, you can also make a claim for direct expenses like stationery, printer ink and cleaning materials.
I’m only working from home temporarily because of coronavirus – are the rules different for me?
On 7 April the ATO announced it was introducing a temporary “shortcut method” of calculating additional running expenses allowing those working from home to claim a rate of 80 cents per work hour. This will apply from 1 March 2020 until at least 30 June 2020. The ATO may extend this period depending on when work patterns start to return to normal.
To claim the shortcut method you don’t have to have a separate or dedicated area of your home set aside for working, such as a private study.
You will need to keep a record of the number of hours you have worked from home as a result of COVID-19. The ATO states you can only claim the deduction if 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.
If you use the shortcut method you must include the note “COVID-hourly rate” in your tax return.
You can still use the 52 cents per hour flat rate method or claim actual expenses but the calculation is probably a bit trickier for those who are working from home for the first time because of the coronavirus.
What sort of proof of expenses do I need to keep and for how long?
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. For the 52 cents per hour method, you just need a diary of your working from home hours. For the other method, you’ll also need to keep all receipts and invoices. All your records should be kept for five years from the date you lodge your tax return.
Make sure you keep these records from now on – don’t try to recreate things retrospectively when tax time comes. You won’t be able to remember exactly what your working hours were and the chances are you won’t be able to find all your receipts – meaning your claim could be lower than it should have been.
Be proactive, file receipts and bills somewhere safe and consider keeping electronic copies in one place on your phone or laptop.
About Mark Chapman
Mark Chapman is Director of Tax Communications at H&R Block and is a regular commentator on tax matters for a variety of Australian broadcast and print media outlets, including; Money Magazine, My Business magazine, The Australian Financial Review, The Daily Telegraph, The Age and The Business Spectator. Mark is an author, Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales.
Follow him on LinkedIn.
Main image source: NewFabrika (Shutterstock)
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