What You Need to Know – Working from Home Tax Returns
While for many, working from home has been a difficult transition, there is light at the end of the tunnel in the form of tax returns. For the first time, employees working from home will benefit from a number of deductions that were previously unavailable. What is important is that employees understand their entitlements and take advantage of the available deductions.
As an employee working from home, investing time in researching which expenses you can claim will pay dividends. Fully understanding this will mean more money is kept in your pocket, so the time it takes to prepare is more than worth it. A general rundown of deductible and non-deductible expenses is provided below to help you navigate your options. Keep in mind however, it’s likely that your individual circumstances will impact what is and isn’t deductible.
What You Can Claim
As an employee working from home, deductible costs are related to office running expenses. These can include:
- Utilities used for heating, cooling and lighting your home office space;
- Telephone and internet bills;
- Depreciation of equipment used while working from home (e.g. laptops and printers);
- Depreciation of furniture (e.g. seats and desks); and
- Office consumables including stationery and printer ink.
What You Can’t Claim
Needless to say, making claims that do not fit into the criteria outlined should be avoided. Either speak with your tax agent or ensure that you read the appropriate guidelines thoroughly. Non-claimable expenses to consider are:
- Office refreshments;
- Childcare and home learning expenses;
- Occupancy costs; and
- Reimbursed expenses (costs your employer pays you back for).
Tax Returns – Calculation Methods
The ATO has provided three different means of calculating your home office expenses. Anyone can use the method which provides them with the most deductible expenses, assuming they meet the eligibility criteria for that method.
The Shortcut Method was introduced in response to the shift in working arrangements to simplify the deduction calculation process for those working from home. The Shortcut Method initially applied only from March 1, 2020 to June 30, 2020, however it can now be applied until September 30, 2020. Employees are able to claim a set rate of 80 cents per hour for each hour worked from home between March 1 and September 30, 2020. Electing to use this method does not require keeping receipts, but it does necessitate a record of hours worked, such as a timesheet. Anyone working from home prior to March 1 is ineligible to use this method.
Fixed Rate Method
The Fixed Rate Method is applicable for employees who worked from home prior to the Shortcut Method threshold of March 1. Fixed Rate allows taxpayers to claim 52 cents per hour for every hour worked from home during the entire year. Anyone choosing to use the Fixed Rate method must have a specific dedicated area of work, such as a study. Spaces like the kitchen are not deemed to be dedicated work areas.
The 52 cents per hour covers electricity and gas, consumables, furniture depreciation and repair costs to home office equipment and furniture. It does not cover phone or internet bills, consumables or depreciation of equipment. The work-related proportion of these uncovered expenses can be claimed separately, provided you have proof of receipts.
Anyone choosing to use Fixed Rate calculation must retain a record of hours worked from home. Alternatively, a 4-week diary can be kept presenting the typical pattern of working from home. This record can then be used to calculate the rest of the year.
Actual Cost Method
The actual cost method allows workers to claim the specific work-related portion of expenses incurred while working from home. This amount is calculated by the dividing the floor area of your dedicated work area between the total floor area of the entire dwelling. This portion is multiplied by the total costs incurred while working from home.
It’s always worth consulting with a tax professional so that you can be confident your return will give you your best possible outcome. Lockwood Partners are available to assist you with tax returns throughout this time. Please don’t hesitate to get in touch with us today.