WORKING FROM HOME – A Guide to the key principles and rules

Working from home has now become the new norm for many people, come tax time, there will be new deductions you can claim, so here are the do's and do not's.

For an expense to be deductible, a taxpayer must:

(a) Have incurred the expense;

(b) Not have had the expense reimbursed by your employer or anyone else;

(c) Have incurred the expense in gaining or producing assess-able income;

(d) Have evidence of the expense which usually includes substantiation of expenses.

What expenses are deductible when working from home?

There are two different categories of expenses – operating expenses (running costs) and occupancy expenses (home office expenses).

Operating Expenses

The work related portion of the following operating expenses may be legitimately claimed:

  • Depreciation of home office furniture, fittings and equipment such as computers and desks.;

  • The cost of heating, cooling, lighting and cleaning your home to the extent that the cost exceeds the amount normally spent if not working from home;

  • The cost of repairing home office furniture and fittings;

  • Home telephone calls;

  • Internet access charges;

  • Printer and printer cartridges;

Item one above, if the amount is less than $300, an immediate deduction for the work-related portion can be claimed; otherwise it must be written off over the effective life of the asset.

Item two - the ATO can now apply a flat rate of 80 cents per hour . This flat rate includes heating, cooling, lighting, cleaning and the decline in value of furniture, so if using the flat rate, you can’t also claim depreciation on office furniture although it can still be separately claimed for office equipment.

A record can be kept of hours worked from home or a diary should be maintained for at least 4 representative weeks to record the amount of time the home is used for work purposes. For example, if as a result of the COVID-19 issue, 25 hours of a working week is conducted at home for 12 weeks in the year to 30 June 2020, $240 can be claimed as a deduction (25 x 12 x 0.80).

Mobile phone usage is also subject to some administrative short-cuts with a standard $50 fixed deduction per year being allowed. Otherwise, an apportioned deduction based on actual expenses is required - and that can be quite rigorous, requiring a diary to be kept for a representative 4-week period.      

Occupancy Expenses

Generally, occupancy or ownership expenses cannot be claimed by employees. This includes expenses such as interest on mortgages, rent, council rates and land tax. All such items relate to costs associated with occupying the premises as a whole - as opposed to running costs associated specifically with working from home.

The only genuine qualification to this exclusion arises if there is a dedicated area which is dedicated as a workplace. An example would be a doctor’s surgery run from the doctor’s home.

There is a downside to consider: if a claim is made for occupancy or ownership expenses, the capital gains tax  main residence exemption will be compromised. It is not so compromised if only operational (running) expenses are claimed. 

What about other equipment and services needed to work from home?

Many employees are working from home for the first time. To facilitate this, equipment and services such as laptops or other mobile devices, webcams , headsets, cloud-based platforms for video and audio conferencing and webinars have been quickly purchased in the last few weeks . 

If the employer has paid for any of these items outright or reimbursed the employee for any such expenses incurred, the employee cannot claim any amount and the employer is entitled to the deduction for the expense or the decline in value of the depreciating asset. If the employee has borne the cost without being reimbursed by their employer, they are entitled to claim a deduction to the extent of taxable use, but they must adjust their claim for any private use. 

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