Since the pandemic begun its fair to say that most employees have spent some time working from home. As a result, there will be expenses incurred that may not have been incurred in prior tax years. It is important to understand what you are entitled to claim as a tax deduction to ensure you maximise your after tax position when lodging your year end income tax return.
The following provides a summary of the shortcut method.
The Australian Tax Office has provided a shortcut method that will apply for the following periods:
1 March 2020 to 30 June 2020
1 July 2020 to 30 June 2021
I suspect that when it comes time to filing the 30 June 2022 there will be further shortcut methods available.
What are the shortcut methods?
Whilst there are other methods available (Fixed Rate Method and Actual Cost Method), you can claim a deduction under the shortcut method of 80 cents for each hour you worked from home for the periods noted above. This will only apply where you are working from home to fulfil your employment duties (i.e. not simply checking emails from time to time); and you incurred additional running expenses as a result of working from home.
The benefit of the shortcut method is that it doesn’t require you to have a dedicated work area such as a spare room set aside as a home office.
What expenses does the shortcut method cover?
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.
If you use the shortcut method to claim a deduction, include the amount at the other work-related expenses question in your tax return and include ‘COVID-hourly rate’ as the description.
What records do you need to keep?
You must keep a record of the hours you have worked from home. This could be a:
- similar document that shows the hours you worked.
Can I use the Actual Method?
As an alternate to the shortcut method you can use the Actual Method.
To use this method you need to work out the actual expenses you have incurred to produce your income while working at home, this may include:
Depreciation of home office equipment; cleaning (for dedicated working area); heating, cooling and lighting; phone and internet; work consumables.
It is important to note that if you don’t have a dedicated work area such as a home office you will generally only incur minimal additional running costs, hence the shortcut method may provide a more superior outcome.
What record do you need to keep?
To claim your work from home expenses using actual costs, you must either keep a:
- record of the number of actual hours you work from home during the income year
- diary for a representative four-week period to show your usual pattern of working at home.
You must also keep all the receipts, bills and other documents which show the additional running expenses you incurred while working from home and that you used to work out your deduction.
Is there another method to claim home office type expenses?
In addition to the above there is a Fixed Rate Method.
to use the fixed rate method, you must:
- incur additional running expenses as a result of working from home
- have a dedicated work area, such as a home office that you use when you work from home
- records that show the work-related portion of expenses not covered by the fixed rate per hour
- records of the number of hours spent working at home for the whole income year.
To find out more about all these methods, visit: https://www.ato.gov.au/general/covid-19/support-for-individuals-and-employees/employees-working-from-home/
The above article was contributed by Sean Urquhart – Tax Director at Nexia – Sydney Office. If you require specific taxation advice feel free to contact him direct on 02 8264-0755.
Please refer to our disclaimer. The above is general information only and should not be relied upon as taxation advice.