Tax Return:: Claiming Tax Deductions for Working from Home Expenses
Hello this is your tax and super specialist, P&C Tax Professionals.
As many of you are aware, the proportion of people working from home has increased dramatically due to the outbreak of the Coronavirus.
So today, in this blog post, we will like to discuss the the eligibility criteria to claim for the home office expense and the methods you could use to account for your working from home expenses.
There are usually 2 ways to apply for your home office tax deduction:
1. Fixed Rate Method
2. Actual Cost Method
Let's begin by briefly going through each of the methods.
1. Fixed Rate Method
The fixed rate method does not involve any complicated, fancy calculations and formulas, instead, you are able to claim the fixed rate of 52 cents per hour you work from home.
<Eligibility Criteria>
In order to use the fixed rate method, the following conditions must be satisfied:
> you must have incurred additional running expenses due to working from home
*If you are sharing the space with other members of your households who are not working from home while you are carrying out your work duties, in this case you are NOT incurring additional running expenses. As a result, you will not be able to claim your working from home expenses as a tax deduction.
> you must have a dedicated work area which you used when working from home
> you must have records of the total number of hours that you spent working from home for the entire financial year (1 July 2020 - 30 June 2021).
The fixed rate of 52 cents is inclusive of the following running expenses you may incur as a result of working from home:
> the depreciation/decline in value of your home office furniture/furnishings (e.g. your office desk). In other words, you cannot claim for the full purchase price of the furniture as your home office tax deduction in a single financial year. Only the depreciation expense is claimable for each financial year.
> electricity and gas that may be needed for heating, cooling and/or lighting
> cleaning for your home office
Expenses that are NOT covered by the fixed rate but which are also claimable if proper records of the expenses are available:
> phone, data and internet expenses (this includes the decline in value of your mobile phone)
> computer consumables and stationery (such as office supplies, ink for your printer, etc.)
> decline in value of your assets which are not classified as home office furniture/furnishings but which are used for work purposes (e.g. computers, laptops, iPads, etc.)
<Example>
Using the fixed rate method, if my working from home hours sum up to a total of 100 work hours for the entire financial year, I would be able to claim 100 hours x 0.52 = $52. Therefore, the amount you can claim for your home office tax deduction would be $52.
2. Actual Cost Method
The actual cost method can be used to claim for a deduction of the actual expenses that you have incurred due to working from home.
<Eligibility>
In order to use the actual cost method, the following conditions must be satisfied:
> you must have incurred additional running expenses due to working from home
> keep proper records in the form of receipts or other written evidence which clearly proves the amount that you have spent on your home office expenses
In order to use this method, you must first calculate the total area of the house you use for work. To give an example, say that your entire house is 100 metres squared. From this, only 10 metres squared (i.e the area of one of your rooms) is being used as a home office. Then, in this case, only 10% of the house is being used for work which means you can only claim 10% of all the expenses related to your home office as a tax deduction.
However, remember to keep in mind that the cost of renting a house is not included as part of your working from home tax deduction. On the other hand, if you use your home office as your main place of business, you may be able to deduct your rental costs (if your house is rented) or your interest and depreciation expenses (if you have purchased the house).
If you are an accountant, lawyer, doctor, etc. and have a room specifically to carry out consultations at home or a workshop dedicated to fulfill your work duties or even if you run a small business with your own house, the rental cost of the house would also be claimable as a tax deduction depending on the % used in relation to work.
Normally, the 2 methods mentioned above are used to account for your home office tax deduction, however, due to the current situation with Covid-19, starting from the last financial year (i.e. the 2020FY), the Australian Taxation Office has temporarily added another tax deduction method to calculate your working from home tax deduction.
Originally, this method was available for use from 1 March 2020 to 30 June 2020 but this has now been extended to 30 June 2021. It is said that this period may be further extended depending on the situation.
Please refer to the ATO link below for your reference.
3. Shortcut Method (only available during the Covid-19 pandemic)
The shortcut method basically allows you to claim a tax deduction of 80 cents per hour you worked from home for the period beginning 1 July 2020 to 30 June 2021.
<Example>
For instance, if you worked 100 hours from home, 100 hours x 0.8 = $80 can be claimed as a tax deduction.
This method is essentially the same as the fixed rate method introduced previously but since the fixed rate method only allows you to claim 52 cents per hour worked, with the shortcut method, you are now able to claim a greater tax deduction for your home office expenses with the higher rate.
4. Supporting Documentations you would need for the Home Office Tax Deduction
<Fixed Rate Method and Shortcut Method>
If you work from home and you choose to use the fixed rate or shortcut method which is based on the cents per hour you work at home, you do not require an extensive amount of supporting documentation as evidence of your expenses. For the fixed rate method and the shortcut method, you would only need to record the number of hours you worked at home for the full financial year and a written documentation from your employer confirming that it is indeed true.
<Actual Cost Method>
On the contrary, a substantial amount of supporting documentations are required for the actual cost method relative to the other two methods. You need to be able to prove that you actually spent the money on the expenses you incurred for your home office. This can be in the form of a receipt which shows the full transaction details of your expenses. Moreover, you would also need to provide evidence as to what percentage of your home area was used solely for work. A common way to prove this percentage is by taking a photo or by advertising the home office on a public platform so as to demonstrate that your home office is indeed the principal place where you carry out your employment activities.
I hope this blog post has given you some useful insights into preparing for your tax return and if you happen to have any further questions or queries, please do not hesitate to contact us through our official Facebook Page (P&C Tax Professionals - Australia) or through our email address at: pnctax@naver.com.
Thank you and bye for now!
Comments