Working from home?
You’re now eligible for a new 80 cents per hour tax shortcut.
The ATO has announced new rules which will make it easier for Australians to work from home during the Coronavirus lockdown.
The new “Shortcut Method” allows people to claim 80 cents per hour, rather than needing to calculate costs for specific running expenses whilst working from home.
Methods to calculate additional running costs
- Shortcut method ─ claim a rate of 80 cents per work hour for all additional running expenses
- Fixed-rate method ─ claim all of these:
- a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture,
- the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery, and
- the work-related portion of the decline in value of a computer, laptop or similar device.
- Actual cost method ─ claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.
The new arrangement does not prohibit people from making a working-from-home claim under existing arrangements, but tracking all of your expenses can be challenging. This shortcut provides a simplified method of calculating expenses from 1 March 2020 – 30 June 2020 with a record of hours worked being the only requirement.
If you prefer to use the other methods, you must record the number of hours you worked from home along with keeping receipts or tax invoices of your expenses, and then apportion the use between what is personal and what is work-related, on a “reasonable basis”.
Whilst on the surface an increase from 52c to 80c sounds attractive, depending on your circumstances it may not get you the biggest deduction come tax time.
To claim the Shortcut Method, the taxpayer must have been working from home to fulfil employment duties, not just minimal tasks such as checking emails occasionally, and have been incurring additional expenses (e.g., electricity, cooling/heating, depreciation on capital items, cleaning expenses, internet/phone costs, etc.) due to working from home.
Unlike ordinary working from home claims, this shortcut method does not require a separate or dedicated area being set-aside for working. And, the only record-keeping required to claim this deduction is the hours worked from home (e.g., timesheets or diary notes).
This means you cannot claim a deduction for items provided by your employer or if you have been reimbursed for the expense.
If you receive an allowance from your employer to cover your expenses when you work from home, you must include this allowance in your tax return and can claim a deduction on expenses as outlined here.
The 30 June 2020 income tax return will include a special item to claim working from home deductions under the shortcut method.
What can I claim?
The shortcut method rate covers all 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
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink
- the decline in value of a computer, laptop or similar device.
You do not have to incur all of these expenses, but you must have incurred additional expenses in some of those categories as a result of working from home due to COVID-19.
If you use the shortcut method to claim a deduction for your additional running expenses, you cannot claim a further deduction for any of the expenses listed above.
What can’t I claim?
If you are working from home only due to COVID-19, you:
- Cannot claim occupancy expenses such as mortgage interest, rent and rates
- Cannot claim the cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work.
It should be noted that working from home expenses incurred before 1 March 2020 (and/or incurred from this date where you do not wish to use the 80 cents per hour method) can only be claimed using the existing claim methods. These methods require an analysis of specific expenses incurred as a result of working from home and have more onerous record-keeping requirements. The existing claim methods might be more beneficial than opting for the simplicity of the new 80c per hour method where you have incurred significant expenses on depreciation, office supplies and other items. The “how much” question will likely be different for everyone.
Alison is a dietician who is now working 38 hours per week from home instead of in the office. Alison keeps track of her mobile phone and internet use for the month of April and works out her mobile is 50% work-related, and her internet is 60% work-related.
Using the fixed-rate method Alison can claim
- 38 hours per week x52c x16 weeks = $316.16 as well as
- 50% of her $99 monthly phone bill over 4 months = $198 and
- 60% of her $80 monthly internet bill x 4 months = $192
Alison’s total working from home claim for March – June = $706.16
Using the Shortcut Method Alison can claim
- 38 hours per week x80c x 16 weeks = $486.40
- Alison is unable to claim phone or internet separately as it is included in her 80c per hour rate.
In this case Alison’s working from home deduction claim would be $219.76 higher by using the existing fixed rate method.
The ATO may extend this new shortcut method, depending on when work patterns start to return to normal.
The new announcement will affect taxpayers differently, and it pays to spend a bit of time working out which method will work best for you. Get in touch if you need assistance, we are here to help.