With more and more Aussies working from home, it can be tricky to understand the implications at tax time. Let’s break down how you may be able to claim work-from-home expenses on your next tax return.
What can I claim on my tax return if I work from home?
If you worked from home during the 2021 financial year then you’re likely to be entitled to claim work from home deductions on your tax return. The most common work from home expenses include:
What are the methods to claim work from home deductions?
However, with more people working from home, the ATO introduced a new method to simplify the ability to claim these expenses using the shortcut method (only available from 1 March, 2020 to 30 June, 2021).
How do the methods compare?
Fixed rate method (running expenses)
With this method, you can claim 52 cents per hour worked at home. This covers costs for heating, lighting, cooling etc. Plus, you can separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.
Available from 1 March, 2020 to 30 June, 2021, this is similar to the fixed rate method, but you can claim 80 cents per hour instead of 52 cents. But – and this is important – it doesn’t just include the heating, lighting and cooling, but also your phone, internet, computer and other expenses. They can’t be claimed separately.
Actual cost method (occupancy expenses)
With this method, you claim the work-related portion of your heating, lighting, cooling and rent or mortgage interest based on the size of your home office. Plus, you can claim the work-related portion of your phone, internet, computer depreciation and other expenses separately.
It’s important to note that this method is tricky. It has much stricter eligibility criteria and has other tax implications such as capital gains, so it’s best to speak to a tax agent before deciding to use this method.
Which method is the best for me?
Everyone’s circumstances are individual, so be sure to take the time to work out what method is right for you. To do this, you’ll need to do a bit of maths or contact your registered tax agent.
Here are two examples to illustrate how, depending on your circumstances, either the fixed rate method or the shortcut method could be the best option.
Example 1: Oliver
Oliver now works three days (24 hours) from home and two days from the office. He keeps track of his personal mobile phone and internet use for one month during April and works out that 50% of his mobile phone use is work related and his internet use is 60% work related. Let’s compare the two methods for Oliver:
Fixed rate method (52c):
- Oliver can claim 24 hours per week x 52c x 48 weeks (1 July, 2020 to 30 June, 2021, less four weeks he took off for annual leave) = $599.04
- Oliver can claim 50% of his $109 monthly phone bill x 11 months = $599.50
- Oliver can claim 60% of his $90 monthly internet bill x 11 months = $594
- Oliver’s total work from home tax deduction claim for 2020/2021 tax year is = $1,792.54
Shortcut method (80c):
- Oliver can claim 24 hours per week x 80c x 48 weeks (1 July 2020 to 30 June 2021, less four weeks he took off for annual leave) = $921.60
- Oliver can’t claim phone or internet as it’s included in the 80c per hour rate.
Therefore, Oliver’s work from home tax deduction claim would be $870.94 higher if he used the standard running expenses rate of 52c per hour, plus his phone and internet separately.
Example 2: Evie
Evie now works 16 hours per week (two days) from home and 24 hours per week (three days) in the office. She has a company laptop and company mobile phone but uses her home internet, which she shares with her husband. Evie calculates her work-related home internet use is 30% of her total internet use.
Fixed rate method (52c):
- Evie can claim 16 hours per week x 52c x 48 weeks (1 July, 2020 to 30 June, 2021, less four weeks annual leave) = $399.36
- Evie’s monthly internet bill is $90 a month which she shares with her husband 50/50. Therefore, Evie’s share of the internet bill is $45 per month and she can claim 30% of that amount for 11 months = $148.50
- Evie’s total work from home claim tax deduction claim for 2020/21 tax year is = $547.86
Shortcut method (80c):
- Evie can claim 16 hours per week x 80c x 48 weeks (1 July, 2020 to 30 June, 2021, less four weeks she took off for annual leave) = $614.40
- Evie can’t claim her internet as it’s included in the 80c per hour rate.
Therefore, Evie’s work from home tax deduction claim would be $66.54 higher if she used the shortcut method.
Common mistakes when claiming work from home expenses
Here are the top three common mistakes I see from people claiming work from home expenses.
Forgetting to apportion shared bills
We often see people who mistakenly claim the entire monthly bill even though the cost of that bill is shared with others. For example, if you live with your spouse then in the ATO’s eyes, you’d split a monthly internet bill of $120 equally. That means your share is $60 per month and that is the amount you use to work out your claim, not the full $120.
Not understanding how depreciation rules work
If you purchase a work-related item, such as a laptop that costs more than $300, you can’t claim it in full on your next tax return. Instead, it’s claimed over the ATO-defined “working life” of the item. Assets you purchase (desks, computers, printers etc.) all have different “working lives” so it’s important to check with your accountant about this one.
Claiming the fixed rate/running expenses method when you don’t have a dedicated room or office in your home.
The ATO has relaxed this rule for those who claim the new shortcut method (for expenses incurred 1 March, 2020 to 30 June, 2021), however, if you want to claim the fixed rate/running expenses method (52c per hour) for this period of time, or for expenses incurred before March 2020, then you must have a dedicated room or office space in your home. The kitchen table or couch doesn’t count.
→ Related: Tax tips: What the ATO will be watching
Main image source: Andrey_Popov/Shutterstock.com
About Liz Russell
Liz Russell is a senior tax manager at Etax.com.au. She has been with the company since it launched in 1998 and brings more than 40 years of tax experience to the table. Her expertise lies in complex individual tax returns.