Coronavirus Support: Claiming Working from Home Expenses
In light of the government’s recommendation for individuals to work from home, the Australian Taxation Office (ATO) has introduced an additional method for claiming working from home expenses. This new method permits those working from home to claim 80 cents per hour worked at home as a tax deduction.
The new ‘shortcut method’
The new method of claiming deduction allows at home workers to claim 80 cents per work hour as a tax deduction in their 2020 income tax return. A taxpayer working from home is able to use this for every hour worked from home due to COVID-19 as long as they are working from home to fulfil employment duties and not just carrying out minimal tasks such as occasional checking of emails. To take advantage of the deduction the taxpayer also has to incur some additional expenses as a result of working from home.
This rate of 80 cents per hour covers all deductible running expenses including electricity for lighting, cooling or heating and running of electronic items used for work such as a computer. It also covers the decline in value and repair of capital items such as office furniture. Other deductible running expenses included are cleaning expenses, phone and interest costs, computer consumables, stationary and the decline in value of a computer or similar device.
In order to claim a deduction for these expenses when lodging the 2019-2020 tax return the taxpayer must keep a record of the number of hours worked from home. These records could be timesheets, diary notes or a roster. The taxpayer must also include a note stating ‘COVID-hourly rate’ in the tax return at the end of this financial year. The ‘shortcut method’ can be claimed from 1 March to 30 June in the 2019-2020 financial year. This method may be a simpler alternative for those working from home as opposed to the traditional method used.
Traditional methods used
Prior to the introduction of the ‘shortcut method’ to offer compensation for those working from home due to COVID-19 taxpayers could claim running expenses for home offices as a deduction by using a fixed rate of 52 cents per hour or by using records kept by individuals to calculate the actual expenses.
The fixed rate of 52 cents operates in a similar capacity to the ‘shortcut method’ with producing records of actual hours spent working from home for the year or by keeping a diary for a representative four-week period to show a usual pattern of working from home. Either can be relied upon to support a claim for deduction included in a tax return lodged with the ATO.
Actual costs of working from home may be claimed by a taxpayer who has a dedicated work area which is used for working from home purposes. This method requires a record of actual costs to be kept, including the taxpayer’s calculations of the portion of costs such as electricity and heating attributable to their working area. This method can be labour intensive but may produce a greater deduction than the cents per hour averaging method.
It is important to note that individuals working from home can still claim deductions using the actual costs method if this would result in a greater deduction than the short-cut or 52 cents per hour methods. For depreciation of items such as computers, and furniture, this would require that the taxpayer keep a record of their actual hours worked, or a representative four week period demonstrating a usual pattern of work, then apportion the value of depreciation of assets used for work from home over between work and non-work use. The portion of depreciation expense attributable to work use may then be claimed as a tax deduction.
The same type of calculations needs to be provided if costs of cleaning and heating, cooling and lighting for work are claimed. The claim would need to be apportioned accordingly to distinguish between private use and work use of utilities being claimed. Further to this, apportionments must also take into account the use of home office by other family members for the purposes of claiming cleaning expenses or the power consumption of appliances or equipment for utilities such as lighting.
An example may be that the taxpayer is an administrative support worker that has a home office and works from home two days per week. If members of the taxpayer’s family use the office for private purposes including personal use of the computer and to store household items, the individual may be able to claim running costs for the two days of work per week but this must be apportioned to the expenses that relate to the work-related use of the home office. It is also important to note that, in the event of an audit by the ATO for work-expenses claimed, a taxpayer must be able to justify apportionment and calculation of the amount claimed as a deduction.
For those who are working from home it is important to consider these factors and which method would be most beneficial and valuable for the purposes of the working from home arrangements. For those who have been working from home prior to COVID-19 it may be more beneficial to claim the actual expenses if an adequate system of recording in already place. However, using the ‘shortcut’ method may be a simple method, particularly on a short-term basis during the COVID-19 pandemic.