Every cloud has a silver lining. While the social distancing measures of COVID-19 mean many Australians are stuck inside, it also means you may be able to claim a tax break for home office expenses.
As with all tax-related matters, strict rules apply to claiming home office expenses. The good news is that the Australian Taxation Office (ATO) has announced special arrangements this year due to COVID-19, which can make it easier to claim deductions for working from home.
The ground rules
Before you start planning for those welcome tax breaks, some basic rules apply to claiming home office expenses. You’ll need to tick at least three boxes:
- You must have spent money on an expense.
- The expense must be directly related to earning your income.
- You must have a record to prove the cost.
Importantly, you can’t claim a deduction for items provided by your employer or if you have been reimbursed for an expense.
Claiming home office costs can be time consuming
Under normal circumstances, calculating home office expenses can be laborious. You typically need a specific area set aside as a work space, and regular costs such as heating, lighting and internet can only be claimed in the proportion your work area represents in relation to your overall home. In other words, if your home office accounts for one-tenth of the total floor space of the home, you can only claim 10% of these expenses.
If you’re working from home due to COVID-19, you can’t claim occupancy expenses such as mortgage interest, rent and rates. In addition, you aren’t able to claim a tax break for the cost of coffee, tea, milk and other general household items (like, say, toilet paper – if you can find any), which your boss would normally provide at work.
A simpler alternative is to claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture. It may be an easier method but it could result in a smaller deduction.
A fast-track claims expense option is now available
Fortunately, the ATO has recognised that an escalating number of Australians are currently working from home as part of social distancing. In response, a new ‘shortcut’ method of claiming home office expenses has been introduced from 1 March 2020 until at least 30 June 2020.
This method lets you claim a rate of 80 cents for each hour you work from home due to COVID-19. It applies if you are:
- working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
- incurring additional deductible running expenses as a result of working from home.
What’s really handy with this method is that you don’t need to have a separate work area. If you’ve set up shop on the kitchen table, you can still claim home office costs this way.
The shortcut method covers all deductible running expenses including electricity, depreciation of equipment, phone and internet, and consumables such as printer ink and stationery.
The catch is that you can’t claim a further deduction for any of the expenses listed above. So if you forked out a few thousand dollars for the latest laptop in order to work from home, you can’t make a separate claim for the cost.
You will need to keep a record of the number of hours you worked from home because of COVID-19. But this can take the form of timesheets, diary notes or rosters, so it’s not too onerous.
To know which method of claiming home office expenses works best for you, talk to your accountant or tax professional.
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