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Working from home due to COVID-19
Like many Australians, there’s a good chance your home has become your office at the moment and working from home is now your new reality. This can have many benefits as well as some drawbacks. Whilst tracksuit pants are now an acceptable form of office attire, Friday night drinks has had to move from your favourite bar, to video calls on your couch. However, slugging it out at home instead of the office means your home is considered a place of business and there are a whole range of items you might not know you can claim as a genuine business expense. Unfortunately, subscribing to all those streaming services is probably not one of those.
The Australian Taxation Office (ATO) has prepared a “Working from home during COVID-10” guide on its website which provides information about expenses you may claim a tax deduction on arising from changed working arrangements from 1 March 2020 due to COVID-19.
While every person’s financial circumstances are unique, it can be helpful to be aware of some of the different deductions that may apply to you. There is no one-size fits all approach, so you should take into consideration your individual circumstances when you claim a tax deduction. To make the most informed tax decisions on your circumstances you should seek professional advice from your accountant or tax adviser.
Expenses you can claim on
To claim a deduction for working from home, you must have spent the money, the expense must be directly related to earning your income and most importantly, you should keep records to prove it.
You might be eligible to claim against any additional running costs incurred whilst working from home. These costs include:
- Electricity expenses associated with heating, cooling and lighting the area from which you are working
- Cleaning costs for a dedicated work area
- Phone and internet expenses
- Computer consumables e.g. paper and ink
- Home office equipment, including furniture and furnishings.
For physical items such as computers or furniture, you may be able to claim either the full cost of items up to $300 or the decline in value for items over $300.
Expenses that can't be claimed
Just in case you’re wondering, unfortunately you can’t claim coffee or toilet paper (per ATO guide mentioned above). Here’s some more expenses you generally can’t claim for:
- Occupancy expenses such as mortgage interest, rent and rates
- The cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work.
- And you can't claim a deduction for items provided by your employer, or if you have been reimbursed for the expense.
Every person’s financial circumstances are unique, so ensure you make your own enquiries about your situation.
Calculating your expenses
The ATO have outlined three methods to calculate your additional running expenses. Tracking these expenses can be challenging, so the simplest option is likely the Shortcut method. This is a temporary method that has been introduced recently by the ATO and will be accepted for the period between 1 March 2020 until at least 30 June 2020 (they may extend this period, depending on when work patterns return to normal).
- Shortcut method ─ you may be able to claim a rate of 80 cents per work hour for all additional running expenses while working from home to fulfil your employment duties (and not just carrying out minimal tasks, such as checking emails or taking calls. The shortcut method rate covers all deductible running expenses (e.g. electricity, cleaning, internet, phone and home office equiqment). You don’t 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 this method, you can’t claim any other expenses for working from home during this period.
- Fixed rate method ─ you may be able to claim the following if you have a dedicated work area, such as a home office, when you work from home.
- 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
- the work-related portion of the decline in value of a computer, laptop or similar device.
- Actual cost method ─ you may be able to claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.
If you use the shortcut method, you only need to keep a record of the hours you worked at home e.g. timesheets or diary. If you use the other methods, you must keep a record of the number of hours you worked from home, along with receipts or records of your expenses.
If you’ve also taken out a form of income protection insurance, you may be able to claim the income protection insurance premiums paid under individual policies as a tax deduction to the extent that it provides benefits that are designed to replace income. Speak to your accountant or insurance company for more specific details and advice.
Soon enough, we’ll be back in the office and complaining about the traffic or public transport hassles. But knowing what you can and can’t claim whilst you’re working from home may be helpful to you come tax time.
AAMI Life has Income Protection Insurance options that may suit your needs. For more information click here.
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