With a majority of the Australian workforce working from home the ATO announced people could claim 80 cents per hour for all their running expenses, instead of calculating the cost for specific expenses.
There are only a few weeks left to file personal tax returns and an increase in claims for work from home items will be a big part of this year’s return. However, the 80 cents per hour claim may leave may not be as beneficial as it first seems. Accountants are warning that it could result in a lower tax refund.
The previous method, known as the 52 cents per work hour method, can still be used to calculate a portion of specific costs such as phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device. Accountants are warning that people could potentially double their tax refund if they keep using the old method, rather than the shortcut.
This is because the old rate allows for more types of deductions, such as mobile phone and home internet. Or a person could use the old method to claim the work-related portion of every individual expense.
This can create a much larger deduction for taxes. For example, according to the ABC, Kristy Baxter of Pilot Partners explained, “One client we assisted worked from home from March 1 to June 30 and advised us that they wanted to use the ‘shortcut method’ which equated to an approximate deduction of $550.”
“Upon further questioning, we discovered that they did have a dedicated home office and had also purchased a new computer, a second computer screen, a new chair and paid for internet and phone which they used for both work and private purposes.
“When we calculated the total cost of all of this using the ‘fixed-rate’ method, their actual deduction was approximately $1,850, which is significantly higher than the deduction under the ‘shortcut method’.”
There has also been a lot of confusion on what can and cannot be claimed under work from home deductions. For example, tea, coffee or other general household items cannot be claimed. Or any tech or equipment that was purchased for a child’s online learning.
With the 52 cents per hour claim method it is possible to claim any of the following:
- the decline in value of home office furniture and furnishings – for example, a desk
- electricity and gas for heating, cooling and lighting
- the cost of repairs to your home office equipment, furniture and furnishings.
To claim using this method, you must keep records that show either of the following:
- your actual hours spent working at home for the year
- a diary for a representative four-week period to show your usual pattern of working at home.
The diary of the four-week representative period can be projected across the remainder of the year to determine the full deduction amount. However, if your work pattern changes you will need to create a new record.
To use this method, you need to have a dedicated work area, such as a home office when you work from home.
This method doesn’t include the following, so you will need to separately calculate your work-related use for:
- phone expenses
- internet expenses
- computer consumables and stationery – such as ink
- a decline in value of equipment – such as phones, computers and laptops.
To claim the work-related portion of these expenses you must have records such as:
- receipts or other written evidence that shows the amount spent on expenses and depreciating assets you purchased
- phone accounts identifying your work-related calls and private calls to work out your percentage of work-related use for a representative period
- a diary that shows
- a representative four-week period of your usual pattern of working at home
- any small expenses ($10 or less) that you can’t get a receipt for totalling no more than $200
- your work-related internet use
- the percentage of the year you used depreciating assets exclusively for work.
While this may seem like a lot of records to keep and maintain, it is defiantly worth it considering the differences it creates in deductions. With the window for filing coming to a close, we encourage you to reach out to a qualified tax accountant with any questions. Or visit the ATO site for more information. If you have questions regarding any past hardware purchases, please do not hesitate to get in touch.