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Are you one of the many Australians now working from home due to coronavirus? If so, you'll be pleased to know the Australian Taxation Office (ATO) has made it easier to claim some of your home office running expenses on tax. This includes things like your home energy and Internet bills. If you were already working from home before the coronavirus outbreak, you can claim your home office expenses on tax too using a slightly different method.
In this guide, we'll outline how to claim your home office expenses on tax this financial year and the different ways you can do this. You can also compare a range of low-cost online tax return services which can help you lodge your tax return and correctly claim all the working-from-home deductions you're eligible for.
Because so many Australians have been forced to work from home due to COVID-19, the ATO has introduced an easy shortcut method for claiming household running expenses this financial year. All Australians working from home due to coronavirus will be able to claim 80 cents per working hour for all their running costs, for the hours worked at home between 1 March and 30 June 2020. If the office closures and lock down extends into the new financial year after June 30 (which is very likely), the ATO has said it will look to extend this shortcut method for another few months.
If you were already working from home prior to 1 March 2020, you can claim your home office and running expenses using the existing method (detailed below) for hours worked before this date.
To be eligible to claim your home office running expenses using the new 80 cents per hour shortcut method you need to:
You don't need to have a dedicated work area in your home to be eligible to claim using this method.
Let's say you started working from home on 10 March 2020 as your workplace closed to help stop the spread of coronavirus. You've been working from home eight hours a day, five days a week. You haven't taken any annual leave or sick days in this period, but there were three public holidays where you didn't work. Your employer hasn't given you any money back to help with the cost of your home Internet or energy bills.
Between 10 March and 30 June 2020 you spent 78 days working from home (this number excludes three public holiday days). At eight hours per working day, that's a total of 624 hours spent working from home during the eligible claim period (1 March to 30 June).
You're eligible to claim 80 cents per working hour, which means you can claim a $499.20 tax deduction for all your home running expenses when lodging your 2019/20 tax return.
Here's how to claim using the new shortcut method in 4 steps:
You're not forced to claim your expenses using this new shortcut method, and you can still choose to claim using the existing method if you want to. If you were already working from home before 1 March 2020, you can use the existing method to claim your working-from-home expenses. However, the existing method does take a bit more time to calculate your expenses.
If you carry out some or all of your work from a home office, you may be entitled to a deduction for the following expenses. This is the case for individuals who previously worked from home before the coronavirus pandemic. You can choose to use this method instead of the newly announced shortcut method, if you want to.
You can claim 52 cents per hour that you worked from home towards all your home office running expenses (listed above). To do this, you can calculate your standard working hours over a four week period then multiple that by 13 to get your yearly working hours (as 52 weeks per year divided by 4 week blocks is 13).
Let's say you calculated for an average four week period you work from home for 20 hours. Multiplying this by 13, you calculate that you worked from home for 260 hours over the income year. You can claim 52 cents per working hour, which means you can claim $135.20 towards your home office running costs.
Instead of using the 52 cents per hour method, you can choose to calculate the actual costs. This involves keeping a log of how many hours you worked from home, and figuring out what percentage of your expenses are for work versus personal use.
For example, let's say you added up your working hours and figured out you worked from home 30% of the time. You could then claim 30% of the actual cost of your energy bill, your internet bill, phone bill etc as a tax deduction.
The amount you can claim for office equipment will depend on the amount of time you use them for work purposes. For instance, if you bought a computer which you use half for work purposes and half for private purposes, you can claim only 50% of the cost or decline in value.
The type of deduction you claim depends on the cost of the asset. For items that don’t form part of a set and are valued at $300 or less, or form part of a set that together costs $300 or less, you can claim an immediate deduction for their cost. For items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.
This method is a lot harder to calculate, and you need to be prepared to show your working and calculations to the ATO. However if you spend more than 50% of your time at home working, it could allow you to claim more using this method.
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It's important to understand that a business that operates from home is different to an employee who works from home. If you run your business from home, you can claim income tax deductions for a portion of the costs owing, maintaining and using your home for this use. However, when you sell your home you may be liable for capital gains tax.
Your home is considered your place of business if you run your business from home and a room is set aside exclusively for your business activity. For instance a business consultant whose main office is in their home where they have clients visit them or a doctor who has their surgery or consulting room at home, where their patients visit them.
If you run your business from home, you may claim both running and occupancy expenses.
For these running costs, you can use a floor plan to allocate the proportion of items to private and business use. If a floor plan isn’t appropriate, other methods may apply. For instance, you could compare power bills from before you began operating to after you commenced operation. When determining these costs, remember to account for holidays and illness.
Generally when you sell your home, you can ignore a capital gain or loss that you make, which is known as the ‘main residence exemption.’ If your home is your place of business, you generally can’t obtain the full main residence exemption.
However, you could be eligible for a partial exemption. To work out how much capital gain is not exempt, you generally need to work out the following:
If you need help calculating the correct amount of tax deductions you're legally eligible to claim, an online tax agent can help.
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When calculating office space on a home business do you include kitchen and toilet facilities as being part of the business and include these values in the business floor space.
Hi Mike,
Thanks for your question.
Generally no, as your kitchen and toilet are typically used for personal reasons and may not have a direct link to earning your income.
We recommend that you speak to a financial planner or tax professional to confirm.
Cheers,
Shirley