Claiming working from home expenses

What you need to know before completing your next tax return.

Coronavirus has meant more Queenslanders than ever are working from home. 

We asked Etax Senior Tax Manager Liz Russell to break down the myriad information about claiming working from home expenses on your FY20 tax return.

What can I claim on my tax return if I work from home?

There are many possible work from home expenses available to eligible taxpayers. The most common ones are:

  • Costs to power a room including heating, cooling and lighting
  • Home phone costs
  • Mobile phone costs
  • Internet costs
  • Office equipment:
    • computer
    • printer
    • office chairs
    • office desk
    • scanner
    • consumables (paper, ink, pens)

People may also be eligible to claim a portion of their rent or interest on their mortgage. However, claiming mortgage interest or rent can have other tax implications so, before deciding to claim these items, it’s best to speak with an accountant about whether it’s the best decision for you.  

What’s changed from previous years?

Previously, there were two main methods approved by the ATO for calculating work from home expenses: running expenses and occupancy expenses. 

However, with more people than ever working from home, the ATO has tried to simplify the ability to claim these expenses with their new shortcut method. 

This new method is only available for claims from March onwards. 

If you want to make a work from home deduction claim before March, only the running expenses or occupancy expenses methods are available. 

How do the three different methods work?

  1. Running Expenses: Claimed at 52c per hour for heating, lighting, cooling etc. 
    Plus, you can separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.
  2. Occupancy Expenses: Claiming the work-related portion of your heating, lighting, cooling and rent/mortgage interest based on the size of your home office. 
    Plus, you can separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.
  3. Shortcut Method (available only from March onwards): Similar to running expenses, under this method you can claim 80c per hour. 
    But, and this is important, it doesn’t just include the heating, lighting and cooling, but also your phone, internet, computer and other expenses. They can’t be claimed separately.

Is the new shortcut method the best method?

To work out whether the shortcut method is right for you, you’ll need to do a bit of maths.

Here are two examples to illustrate how, depending on your circumstances, either the running expenses method or the shortcut method could be the best option for you:

Example 1 – Oliver – Traditional running expenses method is best

Oliver is a lawyer who now works his 40 hours per week from home instead of the office. He keeps track of his personal mobile phone and internet use for one month during April and works out that 50% of his mobile phone use is work-related and his internet is 60% work-related. Let’s compare the two methods for Oliver:

Running Expenses:

  • Oliver can claim 40 hours per week x 52c x 16 weeks (March – June) = $332.80
  •  Oliver can claim 50% of his $109 monthly phone bill x 4 months = $218
  • Oliver can claim 60% of his $90 monthly internet bill x 4 months = $216
  • Oliver’s total work from home claim for March – June = $766.80

Shortcut method:

  • Oliver can claim 40 hours per week x 80c x 16 weeks = $512.00
  • Oliver can’t claim phone or internet as it’s included in the 80c per hour rate.

Therefore, Oliver’s work from home deduction claim would be $254.80 higher by claiming the standard Running Expenses rate of 52c per hour, and his phone and internet separately.

Example 2 – Evie – Shortcut method is best

Evie is a sales manager who now works her 40 hours per week from home instead of the office. She has a company laptop and company mobile phone, but uses her home internet that she shares with her husband. She calculates her home internet use is 50% of her total internet use.

Running Expenses: 

  • Evie can claim 40 hours per week x 52c x 16 weeks (March – June) = $332.80
  • Evie’s monthly Internet bill is $90 a month which she shares with her husband 50/50. 
  • Therefore, Evie’s share of the internet bill is $45 and she can claim 50% of that amount for 4 months = $90
  • Evie’s total work from home claim for March – June = $422.80

Shortcut method:

  • Evie can claim 40 hours per week x 80c x 16 weeks = $512.00
  • Evie can’t claim her internet as it’s included in the 80c per hour rate.

Therefore, Evie’s work from home deduction claim would be $89.20 higher by claiming the new Shortcut method.

What are some common mistakes people make when claiming work from home expenses?

Here are the top three work from home expenses I see each year:

  1. Forgetting to apportion shared bills
    I often see people who mistakenly claim the entire monthly internet bill even though the cost of that bill is shared with others. For example, if you live in a share house with two other people and you split the monthly internet bill of $120 equally, then your share is $40 per month. That is the amount you use to work out your claim, not the full $120.
  2. Not understanding how depreciation rules work
    If you purchase a work-related item, such as a laptop that costs more than $300, you can’t claim it in full on your next tax return. Instead, it is claimed over the ATO defined “working life” of the item. Assets you purchase (desks, computers, printers etc) all have different “working lives” so it’s important to check with your accountant about this one.
  3. Claiming home office expenses when you don’t have a dedicated room or office in your home.

While the ATO has relaxed this requirement for March – June, to claim any home office expenses from before March, you must have a dedicated room or office in your home. The kitchen table or couch doesn’t count.

What evidence do people need to show that their claims are legitimate?

It depends on the item in question. If it’s an item you’ve purchased, then you need a copy of the receipt or invoice for the claim to be valid. 

If you’re claiming a portion of your phone or internet bill, you need to keep a diary for a minimum of four weeks to help you calculate what portion of your phone or internet bill is work-related.

If you’re keen to simplify things and use the new shortcut method and to claim the flat 80c per hour, then you’ll need a record of your timesheets that show how many hours you work each week to support your claim.

Does having more than one person work from home impact a claim?

If more than one person works from home, they can both claim work from home expenses on their tax return. The important part here is that if they’re choosing to claim a portion of bills, such as internet, then they can only claim the share of the bill they pay, not the whole lot.

Under the new shortcut method, all members of the household working from home can claim the 80c per hour on their tax return. It is not limited to just one member of the household.

When should people consider using a tax agent?

I might be biased, but I think people should always use a tax agent.

Over 65% of Australian’s already do get the advice of an accountant as it gives them the peace of mind that their return is correct and they’re getting the best possible refund. 

Remember, it’s the ATO’s job to collect revenue for the Government, not help you get a better refund.