How much can you claim on tax working from home?

Much like the rest of the working world, you’ve probably made the shift to working from home. But there’s a lot more to think about than learning how to bake sourdough, and what to dress up as to put the bins out.

If your home is now your primary place of business, there are now certain expenses you can claim as part of your occupation.

But you can’t claim everything. In this article we discuss what you can claim, what you can’t, and how to do so.

The team at Liston Newton Advisory are specialists in tax advisory. Get in touch with us to discuss your current working arrangements, and how we can help you make your situation as tax effective as possible.

Running expenses

Where part of your home is being used for genuine work-related activities, you’re able to claim this expense as a running cost for tax purposes.

There are three ways you can calculate your running expenses, based on records and level of information you have on hand.

1. Shortcut method

This is the simplest method of calculating your running expenses. You can claim a rate of 80 cents per work hour for all additional business expenses incurred during your time working from home. This covers things like electricity and internet costs, tech consumables, cleaning, and decline in value of office equipment.

However, this must strictly cover full work duties — not the occasional email check or phone call.

Also, if you choose this method you’re unable to claim a further deduction for any business expenses already covered. So, for example, you can’t also claim your internet bill on top of this method.

In order to claim in this method, you must keep a record of the hours you work from home as a result of COVID-19. It can be your timesheet, or a diary note.

When filling out your tax return this will be noted as ‘COVID hourly rate’.

Fixed rate method

Under this method, you can claim:

• A rate of 52 cents per work hour to cover things like electricity, heating or cooling, and the decline in value of your home office furniture.
• The work-related portion of the actual costs of your internet and phone expenses, computer and tech consumables, stationery, etc.
• The work-related portion of the decline in value of your main business device, whether it’s a laptop, home computer, or similar.

As per the Shortcut method, to claim the Fixed rate method you must keep records of the hours you’ve worked at home during this time. This can be either a timesheet, diary note, or a diary for a representative four-week period to demonstrate your typical working pattern.

Actual cost method

This is the most accurate, yet most time consuming method. Under this method, you must be able to provide evidence of any expenses incurred.

This includes:

• Recording the actual number of hours worked during this time.
• Determining the amount of electricity you use for your particular home office set up, for the hours you worked from home.
• Keeping all receipts for work-related expenses, including assets, consumables, cleaning, and any repairs required.

Where you don’t have a dedicated working area, electricity expenses can be calculated by multiplying the individual unit rate by the hours you worked from home.

If any of your expenses are covered by your employer, such as phone or internet bills, these can’t be claimed as a tax deduction.

Occupation expenses

These expenses cover the costs of occupying your property, both when you rent or you own your own home. This includes:

• Rent paid
• Mortgage interest
• Land taxes
• Property insurance
• Council rates.

While you aren't typically able to claim occupation expenses on tax, there are two exceptions where you're able to do so:

• Your home workspace is only usable for work purposes, and not domestic use. For example, this could be a machinery shed, or a dentist’s surgery.
• Your employer hasn’t provided an alternative working location, and you’re required to dedicate part of your home as an office to continue your work.

In these circumstances you can claim occupancy expenses for the portion of your home dedicated to work.

It follows this formula:

(Total occupancy expenses) x (percentage of floor area your home office uses) x (percentage of the year you worked from home)

Example

John works from home for just over 10 weeks, and his employer hasn’t provided an alternative office space. He lives in a 2 x 1 apartment, and has now dedicated his spare room as his home office.

His spare room occupies roughly 15% of his floor area. He has spent approximately 20% of his year working from home.

Therefore, John can calculate his occupancy expenses as such:

(John’s total expenses) x (15%) x (20%)

Capital Gains Tax (CGT) implications

It's important to note that if you primarily work from home, you're partially working from home, or you use your property as a place of business, there may be CGT implications when it comes time to sell your property.

If you're in a working situation where you're able to claim occupancy or working from home expenses, then this means the property itself is being used to produce an income. If you use part or all of your property to produce an income, then you aren’t able to claim the CGT Main Residence Exemption for the part of your home that you use for work.

This then means that if you come to sell your home you will be required to pay CGT on the portion which you’ve used for your work.

Be sure to contact your tax accountant to determine whether or not you're able to claim occupancy expenses on your tax return.

Phone and internet expenses

Almost everyone needs phone and internet access to complete at least part of their job these days. The good news is that you’re able to claim these as tax deductions.

In order to claim any expenses, you need to keep detailed records of all your phone calls and internet usage for a four-week period. This timeframe is then used as a representative period for your entire year.

There are two ways you can claim phone and internet when working from home.

Limited documents

If you only have limited documentation you can claim up to a $50 threshold, which is made up of:

• 75c for every work phone call made on your mobile
• 25c for every work phone call made on your landline
• 10c for every work text message sent from your mobile

Actual expense method

Under the actual expense method you must determine the percentage of work phone calls made, and the amount of internet data used, during your representative four-week period. This can then be multiplied against your phone and internet expenses to determine how much you spent for work purposes.

The important of good record keeping

In order to be able to make any tax deductions on expenses incurred when working from home it’s crucial that you keep accurate records.

This includes:

• Itemised tax receipts for any expenses incurred
• Itemised log of phone call and internet accounts
• Diary entries detailing a representative four-week period of home office use

Some situations require multiple sets of records.

Extraordinary situations such as the COVID-19 pandemic can alter your existing working from home arrangements. In these circumstances, you’re required to keep your usual working from home records, plus a log of the hours worked related to these extraordinary circumstances.

The final word

When working from home there are three golden rules that apply to making tax deductions.

1. You must have spent the money yourself, and it hasn’t been reimbursed by your employer.
2. Your claim must be directly related to earning your working income.
3. You can produce a record that substantiates your claim.

However, these rules only apply to the expenses that you’re able to claim when working from home. Therefore, it's critical to have the right support when determining what you can and can't claim at the end of this financial year.