Working from home: What can I claim on tax?
Working from home due to coronavirus? Here's how to claim your home office and other household expenses as a tax deduction this year.
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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.
What's the new way to claim working-from-home expenses for FY2019/20?
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:
- Be working from home due to coronavirus (if you're still going to your workplace each day, you can't can't claim these home running costs)
- Have incurred the expense yourself without being reimbursed the cost by your employer
- Have a record of your hours spent working from home (payslips, rosters, time sheets or diary logs)
You don't need to have a dedicated work area in your home to be eligible to claim using this method.
Example of the new 80 cents per hour shortcut 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.
How to claim on tax if you're working at home due to coronavirus
Here's how to claim using the new shortcut method in 4 steps:
- Check eligibility. Check you're eligible to claim your working-from-home expenses using the checklist above.
- Calculate your working hours. Calculate how many hours you've spent working at home between 1 March and 30 June 2020. Remember to exclude weekends, public holidays or any extra days off you have.
- Calculate your deduction. Multiply the number of hours worked by 0.80, which will give you the dollar amount that you're eligible to claim for all running expenses.
- Add a reference to your return. Include the note: "COVID-hourly rate" when submitting this deduction in your tax return.
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.
What's the existing method for claiming home office 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.
What you can claim on tax:
- Home office equipment: For equipment such as standing desks, printers, computers or telephones, you can claim for the full cost (for items valued up to $300) or you can claim for the decline in value (for items costing $300 or more).
- Work-related phone use: If you need to use your personal phone for work at home, you can claim a portion of your phone bill as well as the cost of the headset itself. You can check out how to claim your home Internet and mobile bills here.
- Energy costs: You can claim a portion of your electricity bills for heating, cooling and lighting.
- The cost of repairs: This includes the cost of repairs to any home office furniture or fittings.
- Cleaning expenses: If you can show cleaning expenses directly related to the office space.
What you can't claim on tax:
- Occupancy. In most cases, you can't claim occupancy costs such as rent, mortgage repayments or interest and council rates.
- General household items. Things like tea, coffee and toilet paper aren't directly related to earning an income so you can't claim the cost of these.
Option one: 52 cents per hour method
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.
Option two: Actual expenses method
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.
An online tax agent can help you claim eligible deductions and maximise your refund.
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Business run from home: Deductions for businesses who operate from home
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.
How do I know if my home is my place of business?
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.
What deductions can I claim if I run a business from home?
If you run your business from home, you may claim both running and occupancy expenses.
- Utility costs: The expenses related to running the home office utilities such as electricity and gas.
- Business phone costs: If you’ve used a phone for business purposes, you can claim for the rental and calls, but not the installation costs. If you used the phone for both business and personal use, you can claim a deduction for business calls.
- Depreciation of office plant and equipment: You can claim for the decline in value of equipment such as desks, chairs and computer monitors.
- Depreciation of curtains, carpets and light fittings: You can claim for the decline in value of these materials and fixtures.
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.
- Costs associated with owning or renting house: This may include rent, mortgage interest, insurance and council rates. You can claim the portion of these costs that relate to the room that’s used as your place of business. Often this is calculated by the floor area (as a proportion of the floor area in your whole property).
Will I need to pay Capital Gains Tax (CGT) if I use my home for business purposes?
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:
- The proportion of floor area of your home that’s set aside to produce income
- The period of time you used it for this purpose
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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