Claiming working-from-home expenses as a tax deduction

The Australian Taxation Office (ATO) has extended the shortcut method for calculating working-from-home tax deductions.

It enables people to claim a rate of 80 cents per hour to cover their additional running expenses in the 2020–21 income year, instead of needing to do more complex calculations for specific items.

The shortcut method was first introduced in March 2020, in recognition of the large number of taxpayers working from home for the first time because of COVID-19.

To use this method, you don’t need to have a dedicated work area in your home.

It covers the following working-from-home expenses:

• phone usage expenses
• internet usage expenses
• the decline in the value of equipment and furniture
• electricity and gas for heating, cooling, and lighting.

If you use the shortcut method, you cannot claim any other expenses incurred as a result of working from home.

While the method is only temporary, the ATO has extended it several times.

“Even with people shifting back to the office, we know many Australians have opted to continue working from home at least one day a week,” says the ATO’s assistance commissioner Tim Loh.

“The shortcut method is straightforward: just multiply the hours worked at home by 80 cents.

“The only proof you need is a record of the number of hours you’ve worked from home, such as a timesheet.”

Other calculation methods

If you think you could get a bigger deduction, there are two other methods you can use, subject to you meeting the relevant working criteria and recordkeeping requirements:

• fixed-rate method: you can claim a rate of 52 cents per work hour plus other expenses.
• actual cost method: you work out your deduction from actual costs you incur working from home.

On its face, the fixed-rate method (52 cents per work hour) appears less attractive than the shortcut method (80 cents per work hour).

However, in addition to the hourly rate, the fixed-rate method allows you to separately claim your work-related use for:

• phone usage expenses
• internet usage expenses
• computer consumables and stationery — such as ink
• the decline in the value of equipment — such as phones, computers, laptops, and routers.

Items costing less than $300 can be claimed as an immediate deduction (if you use them more than half the time for work purposes).

If an item costs more than $300 you can claim a deduction for depreciation — the decline in the item’s value over its effective life.

Regardless of the item’s cost, you have to apportion the expense between work use and private use and can only claim the work-related portion.

“After adding up these additional costs plus the hours you worked in your home office, you could potentially get a bigger deduction using the fixed-rate method,” says Modoras senior accountant Annette Harden.

“The trade-off is that this method requires more effort keeping records to substantiate the tax-deduction claim.

“You must either keep a record of your actual hours spent working at home for the year; or a diary for a representative four-week period to show your usual pattern of working at home.

“You also need to keep receipts or other written evidence of the amount spent on expenses and depreciating assets and the percentage of the year you used them exclusively for work.

“To use the fixed-rate method, you must have a dedicated work area, such as a home office.

“With more than a month to go until June 30, there’s still time for people to diarise their work pattern at home.”

We sum up working-from-home tax deductions in this short clip:

Regardless of which method you use, there are several home-office expenses you can’t claim a deduction for such as rent, mortgage interest, water, and rates. For more information, call 1300 888 803  and speak to one of our accountants.

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