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2019/20 Tax Return – new working from home rules

Practice of working from home was on the rise, even before COVID19 caused drastic changes in our work arrangements. Certain expenses related to working from home for your income generating activities are deductible when you do your tax return. Because of this change in working arrangement due to COVID19, ATO has introduced a temporary shortcut method of computing your working form home expense. This temporary shortcut method is available from 1 March 2020.

What home office related expenses you can claim?

  • Electricity (for heating, cooling and lighting your work area and to run items you need for work
  • Cleaning cost (if you have dedicated work area)
  • Phone and internet
  • Computer consumables; like toner, paper
  • Computer and electronic equipment (you can claim full cost of items up to $300 and claim decline in value of items over $300)
  • If you have dedicated work area, furniture and furnishings (you can claim full cost of items up to $300 and claim decline in value of items over $300)

Occupancy cost (home rent or interest on mortgage) related to your home office is generally not deductible if you are an employee.

You can claim only the proportion of above expenses which relates to actual time spent on your income generating work. For example, you cannot claim expenses related to time spent not working, such as time spent home schooling your children. Because of this tracking deductible expenses can be challenging. Fortunately, there are options to use fixed rate and the newly available shortcut method which makes claiming for working from home expenses much simpler.

There are three ways of calculating working from home expenses.

  • Fixed rate method
  • Shortcut method
  • Actual cost method

Fixed rate method

You can claim 52 cents per hour worked form home which will cover below expenses related to a dedicated work area.

  • Electricity or gas for heating, cooling, lighting and running computer
  • Cleaning
  • Depreciation of furniture

You need to substantiate your working from home hours by either keeping records of working from home hours for the whole year or by keeping diary for a representative four-week period.

As fixed rate method doesn’t cover decline in value of computer/ electronic equipment, computer consumables, telephone and internet costs you need to separately calculate work related portion of these expenses and keep below records to support your claim.

  • receipts or other written evidence that shows the amount spent on expenses and depreciating assets you purchased
  • phone accounts identifying your work-related calls and private calls to work out your percentage of work-related use for a representative period
  • a diary that shows
  • a representative four-week period of your usual pattern of working at home
  • any small expenses ($10 or less) that you can’t get a receipt for totalling no more than $200
  • your work-related internet use
  • the percentage of the year you used depreciating assets exclusively for work.

Shortcut method

From 1 March 2020, if you are extensively working from home and incurred additional costs as a result, you can claim 80 cents for each hour worked from home. This will cover all the costs related to working from we mentioned earlier including telephone/ internet cost and decline in value of computer and equipment but excluding occupancy expenses. So, if you use this method you cannot claim any other expenses for working from home for the period (excluding occupancy expense if you are eligible for it in exceptional circumstances).

With this method you must keep record of number of hours worked form home by keeping timesheet, roster or diary or any similar records for the whole period (1 March to 30 June 2020). Diary just for four-week period is not sufficient for using shortcut method.

With shortcut method, you don’t need to keep receipts for the above expenses you incurred. You are allowed 80 cents/hour deduction even if you did not incur all of the above expenses. However, you must have incurred additional running expenses in some of the above categories for working from home.

Actual method

Claiming costs on actual method not only require receipts/ other evidence for all expenses and substantiation for number of hours worked but you also need to keep record to show your usual pattern of working at home so you can separate private use of your home office. For example, if you used your home office 50% for work and 50% for private use, you can only claim 50% of your home office cost.