Tax Return:: Claiming Purchases for Work-Related Laptop, Mobile Phone, Tools and Equipment

Hello this is your tax and super specialist, P&C Tax Professionals.

With the outbreak of the Coronavirus, the number of people who are working from home have increased significantly over the past year. As a result, some of our clients have purchased laptops, computers, mobile phones, etc. and one of our frequently asked questions include whether we can claim for the purchase of such items when applying for our tax return.

To put it in simple terms, it is true that if you purchase such items to carry out your employment activities, you can indeed claim the cost of the items as a tax deduction. However, please keep in mind that including such a deduction will not increase your refund amount to a great extent as the claim amount that is applied to your tax return isn't as big as you might expect. If the devices, tools and/or equipment are used for both work and private purposes, as with all other expenses, you must only claim for the work-related portion of the expense.

Today, we will explain to you how the purchase of such electronic devices, equipment and tools that are used for work purposes are applied to your tax return. After reading the explanations, it will become clear as to why the purchase of work-related tools and equipment would not be of much help in boosting your tax refund.

1. Depreciation

If the tool or equipment you have purchased costs $300 or less, you would be able to claim a deduction for the full purchase price of the item in the year that it is purchased, IF the following conditions are met:

> the device/equipment/tools are mainly used to fulfill your work duties

> the product is not part of a set with a combined cost of more than $300.

When you lodge your tax return, if the purchase price of your work-related electronics or equipment exceeds $300, you cannot claim for the full amount of the purchase in that respective year. Instead, you can claim a deduction for the cost of the item over the effective life of the asset. In other words, you can only claim for the decline in value/depreciation of the asset for each financial year.

For example, let's pretend that you purchased a 100% work-related laptop for $1,000 on 1 July 2020 which means that you have held this laptop for 365 years. If the effective life of the laptop is 5 years, in this case, you can claim up to $200 as a tax deduction for the cost of purchasing a laptop during the 2021 financial year.

Depreciation expense: ($1,000 * 100%)/5 years = $200.

Conversely, if you purchased the laptop on 21 June 2021 which is towards the end of the financial year, you will basically get almost no tax deduction benefits for the 2021 financial year. We will explain this in more detail later on.

2. Only the percentage used in relation to your work can be claimed as a tax deduction

Let's continue on from our laptop example as introduced in the above section. In the previous example, we assumed that the work use percentage was 100%, however, if the laptop is used 50% for work purposes and 50% for personal use, you can only claim the 50% work-related percentage when applying for your tax deduction.

Therefore, if you purchased a $1,000 laptop on 1 July 2020, owned it for 365 days (i.e. for the full financial year) with a 50% work use percentage and an effective life of 5 years, you would only be able to claim $100 as the depreciation expense for your laptop.

Depreciation expense: ($1,000 * 50%)/5 years = $100.

The percentage of work-related usage can be calculated as:

Actual number of hours used for work / Total actual number of hours the laptop was used

3. How to Calculate the Depreciation Expense Tax Deduction?

There are two types of depreciation methods commonly known as the "Diminishing Value" and the "Prime Cost" method. Let's carry on with our explanation with the "Prime Cost" method which will be easier for you to understand.

The formula for the Prime Cost method is as follows:

Asset's cost x (Days held/365) x (100%/asset's effective life) x business use %

To explain the formula by taking the example of the $1,000 laptop,

During the 2021 financial year (1 July 2020 - 30 June 2021) using the prime cost method, the depreciation expense would be calculated as:

$1,000 x (365/365) x (100% / 5) x 50% = $100.

If the laptop was only purchased on 21st June 2021 (i.e. towards the end of the financial year) and therefore, if you have only held the laptop for 10 days, the calculation will be as follows:

$1000 x (10/365) x (100% / 5) x 50% = $2.74

In this case, you would only be able to claim $2.74 as your depreciation expense for the 2021 financial year, not much right? In fact, those who own and operate a business entity can benefit a lot from work-related deductions, but for individuals who do not run a business, unfortunately, they cannot receive as much of a benefit from the tax deductions as they would expect.

That's all for now but if you have any questions regarding your tax return or if you would like to enquire about whether the tools or equipment purchased for work is eligible for a deduction, please feel free to contact us through our Official Facebook Page (P&C Tax Professionals - Australia) or through our email address at: pnctax@naver.com .