Working from home? Here’s how to get your tax organised ahead of time

Working from home shouldn't mean losing money on your bills.

Working from home shouldn't mean losing money on your bills. Photo: TND/Getty

If you work from home, you should start getting your ducks in a row and keep track of your hours now to prepare for your tax claim later this year.

Working from home has become widespread since the pandemic hit, with nearly one in five Australians expected to keep working from home for at least some of the week in future.

And with the Omicron variant bringing surging case numbers across the country, some state governments are once again asking Australians to work from home when possible.

The comfort of working from home doesn’t come without a price though; from air-conditioning to internet usage, the price of your bills could be facing a hike.

The good news is you can deduct most of these expenses from your tax bill under a shortcut method created by the Australian Taxation Office (ATO) in 2020.

As of November 11, more than $22 billion worth of individual refunds were issued for the 2020-21 financial year, with an average refund of $2757.

But you’ll need to make sure you’re recording the hours you work from home now to claim the shortcut method at tax time.

What is the shortcut method?

ATO assistant commissioner Tim Loh said because many Australians started working from home during the COVID-19 pandemic, the ATO wanted to make it easy to claim expenses.

So the shortcut method is all inclusive.

This means you can claim 80 cents for every hour you worked from home, without having to work out the exact costs you incurred.

All you need to do is multiply the number of hours you’ve worked from home by 0.80.

Mr Loh suggested keeping a diary or timesheet as a record of your working hours, which you may need to show the ATO.

Although taxes are due by October, the shortcut method only applies to expenses up to June 30, 2022.

What are the alternatives?

If you don’t want to use the shortcut method, or would like to claim work-from-home tax deductions for expenses made after June 30, there are two permanent methods: The fixed rate method, and the actual cost method.

With the fixed rate method, you can use a fixed rate of 52 cents per hour, while if you use the actual cost method you have to work out your actual expenses.

To use either method you must have a dedicated workspace – you can’t just be working off your laptop in the lounge room.

If you use the actual cost method, you need to keep accurate records of your expenses, such as receipts, and figure out the work-related component of those costs, Mr Loh said.

“As to which method is the best method, it really is going to depend on people’s facts and circumstances,” he said.

“So typically speaking, if you have purchased quite an expensive work-related item, the [fixed rate method] or the actual cost method will typically give you a better result.”

Mr Loh said the ATO website also offers online calculators so you can figure out which method is best for you.

What expenses are covered?

All three methods are meant to cover expenses such as:

  • Phone expenses
  • Internet expenses
  • The decline in value of equipment and furniture
  • Electricity and gas for heating, cooling and lighting.

With the shortcut and fixed rate methods, you don’t have to work out the exact cost of all of the above expenses, but you will have to do this if you are using the actual cost method.

You are not able to claim the following expenses with any of the three methods:

  • Occupancy expenses such as rent, mortgage interest, water and rates
  • General household items such as coffee, tea and milk
  • Expenses related to children and their education, including setting up online learning, teaching at home, or buying equipment such as iPads and desks
  • Anything that you have been reimbursed for, that has been paid directly by your employer, or the decline in value of items provided by your employer – for example, a laptop or a phone.
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