It’s obvious that due to COVID-19 your working arrangements may have changed.
If you have been working from home, you may have expenses you can claim a deduction for at tax time.
Tracking these expenses can be challenging, so ATO has introduced a temporary shortcut method.
It’s a simple way to calculate these expenses with minimal record keeping requirements.
The shortcut method initially applied from 1 March 2020 to 30 June 2020, however it can now be applied up until 30 September 2020.
It means you’ll be able to use the shortcut method to calculate your working at home expenses for the period from:
- 1 March 2020 to 30 June 2020 in the 2019–20 income year, and
- 1 July 2020 to 30 September 2020 in the 2020–21 income year.
ATO may extend this period, depending on when work patterns return to normal.
If you’re working from home as an employee, there’ll be no capital gains tax implications for your home.
Claiming a deduction
To claim a deduction for working from home, all the following must apply:
- you must have spent the money
- the expense must be directly related to earning your income
- you must have a record to prove it.
This means you can’t claim a deduction for items provided by your employer, or if you have been reimbursed for the expense.
If you are not reimbursed by your employer, but receive an allowance from them to cover your expenses when you work from home, you:
- must include this allowance as income in your tax return
- can claim a deduction for the expenses you incur.
Expenses you can claim
If you work from home, you will be able to claim a deduction for the additional expenses you incur. These include:
- electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- cleaning costs for a dedicated work area
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the
- full cost of items up to $300
- decline in value for items over $300.
Expenses you can’t claim
If you are working from home, you can’t claim:
- the cost of coffee, tea, milk and other general household items your employer may otherwise have provided for you at work
- costs related to children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
- items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone
- time spent not working, such as time spent home schooling your children or your lunch break.
Employees generally can’t claim occupancy expenses such as rent, mortgage interest, water and rates.
Calculating your expenses
For the 2019–20 income year, there are three ways of calculating home office expenses depending on your circumstances. The methods are the:
- Shortcut method (80 cents) – only available 1 March 2020 to 30 June 2020
- Fixed rate method (52 cents)
- Actual cost method.
You don’t have to use the shortcut method.
Please note that you can choose to use one of the existing methods to calculate your deduction.
You can use the method or methods that will give you the best outcome, as long as you meet the criteria and record keeping requirements for each method.
For information and examples on how to calculate your expenses prior to 1 March or to use the fixed rate or actual cost methods.
You can claim a deduction of 80 cents for each hour you worked from home in the 2019–20 income year during the period 1 March 2020 to 30 June 2020 as long as you:
- were working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
- incurred additional running expenses as a result of working from home.
The shortcut method doesn’t require you to have a dedicated work area, such as a private study.
The shortcut method covers all additional deductible running expenses, including:
- electricity for lighting, cooling or heating and running electronic items used for work (for example, your computer), and gas heating expenses
- the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink and stationery
- the decline in value of a computer, laptop or similar device.
You don’t have to incur all these expenses to use the shortcut method, but you must have incurred additional running expenses in some of these categories when working from home.
If you use this method, you can’t claim any other expenses for working from home for that period.
When you are calculating the number of hours you worked from home, you need to exclude any time you took a break from working, for example the time you spent to stop and eat your lunch or to assist your children with home schooling.
You can calculate your deduction for additional running expenses using the shortcut method, with this formula:
- total number of hours worked from home between 1 March 2020 and 30 June 2020 × 80 cents (for the 2019–20 income year)
- total number of hours worked from home between 1 July 2020 and 30 September 2020 × 80 cents (for the 2020–21 income year).
If you use the shortcut method to claim a deduction in your 2019–20 tax return or 2020–21 tax return, include the amount at the other work-related expenses question in your tax return and include ‘COVID-hourly rate’ as the description.
Remember, you can only use this method from 1 March to 30 June 2020 for the 2019–20 income year.
You will be able to include the period from 1 July 2020 to 30 September 2020 in your tax return next year.
For information on how to calculate your working from home expenses prior to 1 March, or if you choose to use one of the existing home office expenses methods to calculate your deduction instead.
Records you must keep
You must keep a record of the number of hours you have worked from home. This could be a:
- diary, or
- similar document that sets out the hours you worked.
If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses.
Documents you need to do your tax return
Depending on your job and industry, you’ll need to a few documents to help you complete your tax return, such as:
- Your PAYG Payment Summary issued by your employer
- Private health insurance statements
- Any payment summaries from Centrelink relating to government assistance and relief packages (including JobSeeker and JobKeeper payments)
- Bank statements that show interest earned on bank accounts
- Receipts from charitable donations; and accountancy fees from the previous year’s tax return.
It will certainly make your life easier by gathering all these documents together before doing your tax return.
How to lodge your tax return
You can lodge your tax return with a registered tax agent which costs you a fee (but it’s fully tax deductible for next year’s tax return).
Alternatively, it’s free to use MyTax, the lodgment service on the ATO website.
Residents have up until 31 October 2020 to prepare and lodge a tax return for the 2019–20 tax year without penalty if you are lodging it yourself.
If you file your return with a registered tax agent, you may have more time, but you’re still required to engage them before 31 October 2020.
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