The recent global pandemic has brought about an increasing need for employees to work from home.
To claim to work from home deductions, the ATO requires an employee:
• To work from home to fulfill employment duties (i.e. not just carrying out minimal tasks, such as occasionally checking emails or taking calls); and
• Incur additional expenses as a result of working from home.
In this blog article, we look at what working from home deductions are available to employees and how to calculate your claim.
What are the ATO accepted methods to claim working from home expenses?
The ATO sets out three methods an employee can use to calculate working from home deductions.
In addition, there is also an ATO requirement to keep records that show how the employee has incurred the expenses.
The three methods are:
• Short Cut Method (new method introduced by the ATO in response to the COVID-19 pandemic);
• Fixed Rate Method; and
• Actual Cost Method.
Each of these three methods is described below.
Method # 1 – Short Cut Method
This is a temporary method introduced by the ATO for the 2020, 2021, and 2022 financial years.
You can use this method if you are an employee working from home and incurred additional running expenses as a result and you have a record of the number of hours you worked from home.
Using this method, you can:
• Claim 80 cents per hour for each hour you work from home;
• Cannot claim any other expenses for working from home, even if you purchased new equipment.
• The short cut method covers all your working from home expenses, such as:
a. Phone expenses;
b. Internet expenses;
c. Deprecation of equipment and furniture; and
d. Electricity and gas for heating, cooling, and lighting.
• Record keeping – you must have a record of the hours you worked from home, for example, a timesheet, roster, or diary.
Method # 2 – Fixed Rate Method
This method can be used if you:
• Incur additional running expenses as a result of working from home;
• Have a deducted work area, such as a home office that you use when working from home;
• Have records that show the work-related portion not covered by the fixed-rate per hour; and
• Records of the number of hours spent working at home for the whole income year.
What expenses are covered by the fixed rate?
You can claim the fixed rate of 52 cents for each hour you worked from home. The rate of 52 cents includes the additional running expenses you incur for:
• Deprecation of home office furniture and furnishings (eg. a desk);
• Electricity and gas for heating, cooling, and lighting; and
• Cleaning your home office.
What expenses are not covered by the fixed rate?
The following expenses are not covered by the fixed rate of 52 cents:
• Phone, data, and internet costs;
• Computer consumables and stationery; and
• Asset deprecation, other than home office furniture and furnishings used for work (e.g., computers and laptops).
To claim the work-related portion of your working from home expenses, you must keep:
• A diary of the number of actual hours you work from home during the income year or a diary of a representative four-week period to show your usual pattern of working from home;
• Receipts or other written evidence that shows the amount spent on expenses and depreciating assets you purchase;
• Phone accounts identifying your work-related and private calls to work out your percentage for work-related use for a four-week representative period;
• A diary that shows:
a. Your work-related internet use; and
b. The percentage of the year you use your depreciating assets exclusively for work.
If you record your hours worked from home during a four-week representative period, you can use it across the rest of the year to work out the total number of hours you worked from home. If your work pattern changes you need to create a new record.
If you don’t have a 4-week representative period, because your hours vary throughout the year, you will need to keep records for the entire income year.
Method #3 – Actual Cost Method
This method can be used if you:
• Incur additional running expenses as a result of working from home (employees generally cannot include deductions for rent payments);
• Keep records, for example, receipts or other written evidence, which show the amount:
a. Spent on expenses;
b. Spent on depreciating assets you buy and use while working from home;
c. Of work-related use of your expenses and depreciating assets; and
Note: You do not incur additional running expenses if other members of your household (who are not working from home) are in the same area as you while working from home.
Using the actual costs method, you work out your deduction by calculating the actual expenses you incur to produce your income when working from home.
• Depreciation on assets (e.g., home office desk, chair) and furnishings, phones, computers, laptops, or similar devices;
• Cleaning expenses (only applicable if you use a dedicated area);
• Heating, cooling, and lighting;
• Phone and internet – calculated based on a four-week representative diary and your phone and internet bills.
• Computer consumables and stationery – using receipts for the items you purchase (if you use the item for both work and private, you can only claim the work-related portion of the expenses).
Please contact us if you would like to find out more about how you can claim working from home deductions.
The team at EMspire Advisory are trusted, qualified Chartered Accountants, tax agents, and small business accountants. We work closely with our clients to achieve the best possible outcomes. To find out more, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.