tax deductions

Work from home tax deductions set to spike

The ATO is bracing for a spike in work related tax claims as the Coronavirus forces Australians to work from home. Here's what you can claim.

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Rent, electricity, laptops and internet are set to be popular tax deductions in the new financial year as the Coronavirus forces many Australians to work from home for an indefinite period.

The Australian Tax Office is bracing for a spike in tax claims from June 30 and is working to simplify guidance around the rules for deductions to make the whole experience easier to understand.

“We recognise that the rules can be complex for people and are actively working on how we may be able to simplify our guidance to make it easier at tax time when you are preparing your return,” says an ATO spokesperson.

 “For the moment, there are two key things we need you to do:

  1. keep the receipts for the extra expenses you paid for that your employer won’t be reimbursing. This includes things you purchase for working at home (like laptops, monitors or other equipment) and any on-going expenses on things you are using to work from home (like mobile phone bills).
  2. keep records of the hours you are working at home.”

Never before in Australia’s history have so many employees been given the green light to work from home as governments urge people to adhere to requests for social distancing and self isolation.

Tamara Lecky-Thompson is one of those people. In a normal week she works in Sydney’s CBD in the recruitment industry but now she must work from home while also juggling the schooling and care needs of her two children.

“I’ve had to buy office supplies like pens and note books and pay for a Zoom online conference subscription to ensure that I can continue to provide a meeting platform for clients looking to interview potential employees.

“I’ve also had to buy an iPad for my children so they can participate in home schooling online.

“While I have worked from home before on occasion, the difference now is I’m doing it five days a week and for the foreseeable future,” Ms Lecky said.

Tax experts believe the ATO is likely to be more generous with allowing home office claims in the new financial year.

“With more and more individuals working from home due to the spread of the

Coronavirus, employees will be looking to claim a larger proportion of their home office running and/or occupancy costs in the coming years’ tax returns,” says Kate Hills accountant at Whitehead Dingley and Betar.

Generally the ATO uses benchmarking in tax returns to determine whether employees are claiming over the expected benchmark for their occupation and salary bracket for certain categories of home office expenses.

But now with the surge of employees required to work from home, these home office claims will substantially increase in individual’s tax returns since there’s no longer the option to work from their employer’s premises.

In a reflection of the demand for home office products, electronics and office retailers like JBHiFi and Officeworks have reported a jump in home office sales products since the start of this year.

JB Hi-Fi recently reported that total sales were up 9.1 per cent from January 1 to March 22 compared with the same period last year.

When it comes to claiming home office expenses, here’s what you need to know in order to increase your chances of success.

  1. The items you claim must be work related and essential to you carrying out your job.
  2. There are two methods for validating a claim for work-related home office expenses – either keep a diary of the hours worked from home or apply a fixed rate method.
  3. If your employer covers any of your home office expenses, you can’t claim the relevant expense in your tax return as you’ve been fully reimbursed.

“I would recommend if individuals are working from home, they track their working hours using a diary to maximise their home office tax deductions – Outlook or similar will do,” says Ms Hills. “This is referred to as the ‘Actual Expenses Method.”

The ATO requires a diary to be kept showing your usual pattern of working at home which is then used to calculate the work-related portion of any home office expenses.

“The other method for claiming home office expenses is the ‘Fixed Rate Method’ which allows you to claim $0.52 for each hour you work from home.

“This will cover any claims for heating, lighting, cooling and furniture expenses,” says Ms Hills.

Here are some of the expenses to consider as possible tax deductions for your home office:

  1. Purchases of home office equipment, including computers, headphones, printers, scanners, telephones, furniture and furnishings. Any capital items greater than $300 will need to be depreciated.
  2. Purchases of home office software, including antivirus, virtual meeting room subscriptions, and various cloud software products.
  3. Heating, lighting and cooling including a portion of any air-conditioning installed in your home office area.
  4. Cost of repairs to home office furniture and equipment.
  5. Cleaning costs.
  6. Consumables such as printing and stationary.
  7. Rent – only if no other work location is available by your employer and you’re required to convert part of your home into a dedicated office.

Melissa Browne CEO of the Money Barre and author of Unf*ck Your Finances expects that more people who rent the dwelling they are living in, will claim for their rental costs if working from home.

“Generally you can’t claim a proportion of your rent if a place of work is provided. But my understanding is if you don’t have a workplace that you can operate out of then, you should be able to claim a portion of your rent.”

But she warns that claiming on rent is not the same as claiming on the interest portion of a home mortgage.

“That is different and if you do that you may in fact trigger an unexpected capital gain tax implication.

“I think the ATO needs to be very clear and directive on what people are allowed to claim,” says Ms Browne.

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