The onset of the COVID-19 pandemic and lockdowns around Australia has meant many taxpayers have been forced to work from home. It is expected that the number of claims for home office deductions will increase significantly when income tax returns for the 2019/20 financial year are lodged.
What can you claim?
It is important for taxpayers to be aware of the home office expenses they are entitled to claim when preparing their income tax returns. Generally, expenses associated with a taxpayer’s home are private and non-deductible. However, where the following criteria are met, the taxpayer may be able to claim a tax deduction:
- Expenses have been incurred and they have not been reimbursed.
- There is connection between the use of the home office and the taxpayer’s income.
- The income producing use is substantial and not merely incidental, and
- The amount is limited to the extent that the expense is work related and not private.
If the above criteria are met, there are three methods for claiming home office expenses.
1. The actual method
In this method, the taxpayer must maintain a record of all home office related expenses, and the extent to which they are deductible. The expenses can include: occupancy expenses, electricity, gas, repairs and maintenance, home telephone, and internet expenses.
2. Fixed rate method
An alternative is the fixed rate method, which is a fixed rate of 52 cents per hour. This method is used to estimate the home office running costs including items such as electricity, gas, cleaning, and the decline in value of home office furniture and furnishings.
It does not include items such as stationery, computer consumables, occupancy expenses, and decline in value of electronic equipment.
3. The shortcut method
In April 2020, the ATO released a simpler approach to claiming home office expenses in response to more taxpayers working from home due to COVID-19. The shortcut method is calculated at 80 cents per hour. It covers all running expenses included in the fixed rate method, plus phone expenses (including decline in value of the handset), internet expenses, computer consumables, stationery, and the decline in value of computer.
To use the fixed rate or shortcut method, taxpayers must record the days and number of hours they have worked to substantiate their deduction.
Article written by Colm Howard