What method should I use to claim work from home expenses?
Social distancing restrictions put in place amid coronavirus have seen many employees forced to work from home.
And while these restrictions are essential to the safety of the Australian workforce, working from home encompasses a range of additional expenses that you wouldn’t normally be required to incur.
Some employers have opted to assist their workers by giving them an allowance to cover these additional expenses. However, in most cases, the best way to recoup these costs is to claim them back on your tax return.
So what methods are available to calculate and claim a deduction? And more importantly, which is the best option for your circumstances?
The most common way to claim your running costs is through the fixed rate method. With this method, you will be able to claim 52 cents per hour worked at home.
Let’s say you worked at home for 35 hours a week for 15 weeks of the year. To calculate your claimable amount, you the calculation would look like the following:
35 hours x $0.52 x 15 = $273
This would cover all bills including heating or cooling, electricity and depreciation of your work equipment. For this method, you will need to keep a work diary detailing the dates and times you commenced and ceased work, as well as any breaks taken throughout the day.
Phone & internet expenses
For phone and internet, you would then need to work out what percentage of your actual costs can be attributed to work activities. This includes phone and internet expenses, computer consumables and stationery.
For any work-related equipment or furniture, you will need to work out depreciation using the ATO’s depreciation tool.
Learn more about the fixed-rate method here.
Actual cost method
This method is very complicated and involves keeping records of all expenses incurred.
You will also need to work out the floor area that is used for your workspace as a percentage of your total floor area. From here, you’ll work out the extent to which your home is being used as an office.
In general, people avoid this method as it can be very time consuming and confusing. However, using this method has the potential to greatly increase the claimable amount in certain circumstances.
If you’re interested in using actual records to claim home office expenses, get in touch with our team – we’d love to help.
Learn more about the actual cost method here.
The shortcut method, as the name suggests, is probably the simplest way to claim all home office expenses.
Let’s say you worked at home for 35 hours a week for 15 weeks of the year. To calculate your claimable amount, the calculation would look like the following:
35 hours x $0.80 x 15 = $420
To claim the shortcut method, you must be:
- Working from home to fulfil employment duties (not just checking emails and taking calls).
- Incurring additional deductible running expenses as a result of working from home.
What is covered in the shortcut method?
- Electricity for heating, cooling and lighting, running electronic items used for work (for example your computer), & gas heating expenses.
- The decline in value and repair of capital items, such as home office furniture and furnishings.
- Cleaning expenses.
- Your phone costs, including the decline in value of the handset.
- Your internet costs.
- Computer consumables, such as printer ink.
- The decline in value of a computer, laptop or similar device.
Note: To claim via the shortcut method, you do not have to incur all of these expenses. Incurring some of these additional expenses as a result of working from home due to COVID-19 will suffice.
Learn more about the shortcut method here.
Things to consider when choosing how to calculate your deductions:
Of the three methods, it’s obvious that the shortcut method is the quickest and simplest method of claiming a deduction for home office expenses.
However, our tax specialists are advising Australian taxpayers to take caution when choosing this method. The trade-off for simplicity in your tax return is the potential to lose out on bigger tax deductions.
The shortcut method has been introduced for the countless Australians that have never needed to claim home office expenses before and would find it challenging to calculate costs under the traditional method.
So while it will indeed save time and stress by incorporating all costs into one simple sum, it also has the potential to leave taxpayers worse off when it comes to receiving their tax refund.
Who should use the Fixed Cost Method for claiming home office expenses?
While the record-keeping and calculation process is much more complex, the fixed cost method will likely see many people receive greater refunds come tax time.
This is especially true for people who have invested in assets for their home office and whose work-related portion of internet, phone and computer use was more than $50 per month.
In instances like these, taxpayers could see their deductions more than double by using the fixed cost method over the shortcut method.
At a time where every dollar counts, we recommend using the fixed cost method for anyone who is not sharing their home office with a family member or housemate and anyone that has needed to purchase additional assets in order to work from home.
If you’re concerned about your ability to accurately apportion work-related costs, our team are here to help. Just hold on to your receipts and track the number of hours you’ve worked from home; we’ll help you do the rest.
Who should use the Shortcut Method for claiming home office expenses?
The shortcut method is perfect for people who are new to working from home and who might struggle to accurately apportion their work from home expenses.
It’s also beneficial for those who haven’t needed to purchase work-related assets, who are light internet users and who are sharing their home office with family members and housemates. This is because the total amount of these expenses is likely to be divided among all workers accessing them, subsequently dividing the amount each person is able to claim.
Working out home office tax deductions can be confusing, especially if you’ve never needed to do it before. Our team of tax specialists are here to help you maximise your tax return and get every dollar you’re entitled to. Get in touch with our team to book your tax consultation and be confident in the way you claim.