For many of us, COVID-19 saw us switching to at-home working arrangements almost overnight.  If you or your staff are entitled to claim work from home expenses, it is important to understand how to calculate eligible expenses to claim a deduction at tax time.

To make the process easier for many taxpayers, the ATO developed a temporary shortcut method.  It has been designed to make the calculation of these expenses simple with minimal record keeping requirements. The shortcut method may be used to calculate your working at home expenses for the period between:

  • 1 March to 30 June 2020 in your 2019–20 tax return
  • 1 July to 30 June 2021 in your 2020–21 tax return.

The ATO may choose to extend this period, depending on when work patterns return to normal.  In most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.  However, if you are running a business from home or claiming occupancy expenses (like rent, mortgage interest or rates), then CGT may apply.

Claiming a deduction

To claim a deduction for working from home, all the following must apply:

  • you must have spent the money
  • the expense must be directly related to earning your income
  • you must have a record to prove it.

This means you can’t claim a deduction for items provided by your employer or if you have been reimbursed for the expense.  If you are not reimbursed by your employer, but receive an allowance from them to cover your expenses when you work from home, you:

  • must include this allowance as income in your tax return
  • can claim a deduction for the expenses you incur.
Expenses you can claim

If you work from home, you can claim a deduction for the additional expenses you incur. These include:

  • electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
  • cleaning costs for a dedicated work area
  • phone and internet expenses, see more below
  • computer consumables (for example, printer paper and ink) and stationery
  • home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the:
    • full cost of items up to $300
    • decline in value (depreciation) for items over $300.
Expenses you can’t claim

If you are working from home, you can’t claim:

  • the cost of coffee, tea, milk and other general household items your employer may have provided for you at your workplace
  • costs related to children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
  • items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone
  • time spent not working, such as time spent home schooling your children or your lunch break.

Employees generally can’t claim occupancy expenses such as rent, mortgage interest, water and rates.

Calculating your expenses

There are three ways of calculating home office expenses depending on your circumstances. The methods are the:

You don’t have to use the shortcut method. You can choose to use one of the existing methods to calculate your deduction. You can use the method or methods that will give you the best outcome, as long as you meet the criteria and record keeping requirements for each method.

Shortcut method

You can claim a deduction of 80 cents for each hour you worked from home for the period between:

  • 1 March 2020 to 30 June 2020 in your 2019–20 tax return
  • 1 July 2020 to 30 June 2021 in your 2020–21 tax return.

If you:

  • were working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
  • incurred additional running expenses as a result of working from home.

The shortcut method doesn’t require you to have a dedicated work area, such as a private study.

The shortcut method covers all additional deductible running expenses, including:

  • electricity for lighting, cooling or heating and running electronic items used for work (for example, your computer), and gas heating expenses
  • the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
  • cleaning expenses
  • your phone costs, including the decline in value of the handset
  • your internet costs
  • computer consumables, such as printer ink and stationery
  • the decline in value of a computer, laptop or similar device.

You don’t have to incur all these expenses to use the shortcut method, but you must have incurred additional running expenses in some of these categories when working from home.

If you use this method, you can’t claim any other expenses for working from home for that period.

When you are calculating the number of hours you worked from home, you need to exclude any time you took a break from working.

Fixed rate method

You can use a fixed rate of 52 cents per hour for each hour that you work from home (instead of recording all of your actual expenses for heating, cooling, lighting, cleaning and the decline in value of furniture). To claim using this method, you must keep records of the actual hours you worked at home during the income year, or keep a diary for a representative four-week period to show your usual pattern of working at home. You can then apply this amount of use across the remainder of the year to determine your full claim.

Since the decline in the value of furniture is included in the fixed rate method, you cannot separately claim the purchase of furniture.

You need to separately work out your expenses for phone and internet usage, computer consumables and stationery and the decline in value on your computer.

Actual expenses method

If you have a dedicated work area, you:

  • record the number of actual hours you worked from home during the income year
  • work out the cost of your cleaning expenses by adding together your receipts and multiply it by the floor area of your dedicated work area
  • work out the cost of your heating, cooling and lighting by working out the following:
    • the cost per unit of power used (using your utility bill)
    • the average units used per hour – this is the power consumption per kilowatt hour for each appliance, equipment or light used
    • the total hours used for work-related purposes while you were working from home.

You must also take into account the use of this area by other members of your household, if applicable, and apportion your expenses accordingly. To calculate your deduction for the decline in value of equipment, furniture and furnishings that cost more than $300, the item must be depreciated and apportioned to reflect your work-related use.

If you did not have a dedicated work area, the additional expense for lighting, heating, cooling and electricity should be calculated by determining the actual cost of running each unit you used per hour and multiplying that by the hours you spent working at home.

Calculating phone and internet expenses

If you use your phone or internet for work, you can claim a deduction for the work-related percentage of your expenses if you paid for these costs and have records to support your claims. You need to keep records for a four-week representative period in each income year to claim a deduction of more than $50. Diary entries and any other evidence which shows you worked from home and made work-related phone calls will also help to demonstrate that you are entitled to a deduction.

There are two ways to calculate your phone and internet expenses – you can claim up to $50 with limited documentation, or you can calculate your actual expenses.

If your work use is incidental and you are not claiming a deduction of more than $50 in total, you may make a claim based on the following, without having to analyse your bills: $0.25 for work calls made from your landline, $0.75 for work calls made from your mobile and $0.10 for text messages sent from your mobile.

If you have a phone or internet plan where you receive an itemised bill, you need to determine your percentage of work use over a four-week representative period which can then be applied to the full year. You need to work out the percentage using a reasonable basis. This could include the number of work calls made as a percentage of total calls the amount of time spent on work calls as a percentage of your total calls or the amount of data downloaded for work purposes as a percentage of your total downloads. If you have a bundled plan, you need to apportion the cost of the plan between the services provided and identify your work use for each service over a four-week representative period during the income year, which can then be applied to the whole year. The same method should be used for non-itemised plans.

Source: Australian Taxation Office