Working-from-home tax guide: What you can and can’t claim

Working from home has flipped what we know about tax on its head.

Working from home has flipped what we know about tax on its head. Photo: Getty/TND

The coronavirus pandemic has massive implications for this year’s tax season.

Work expenses in particular have been flipped on their head, with many workers required to work from home since March or April.

The ATO responded to the challenge by introducing a “shortcut” method to calculate deductions, but experts say some workers could actually end up paying more tax using that method.

So, here’s what you need to know about filing this year’s tax return.

What expenses can I claim?

Workers can claim the following expenses, according to the ATO’s COVID-19 advice hub:

  • Electricity expenses related to regulating temperature and lighting the work-related space of your home (during work hours)
  • Cleaning costs for their work-specific area
  • Phone and internet (apportioned to your work-related usage)
  • Stationery and ‘computer consumables’ (e.g. paper, printer ink)
  • Home office equipment, including computers, other work-related technology, furniture and furnishings (full cost for items of up to $300, and depreciation costs for those over $300).

OK. What evidence should I provide?

The ATO has three golden rules on how to claim working expenses.

“Employees must have spent the money themselves and not been reimbursed, ensure the expense is directly related to earning their income, and have a record to prove their claims,” the ATO says.

And the first place to start is by collating records that prove how many hours you have worked from home and how much you have spent on work-related expenses.

Matthew Prouse, head of industry at accounting software firm Xero, said maintaining evidence can be as simple as keeping a diary, along with time sheets, receipts and hardcopies of bills.

“You need to keep track of your appointments, your work-related calls, the days you worked from home and the costs that occurred on those days, not every day,” Mr Prouse told The New Daily.

“If you’re going down the actual costs route, using things like smart meters to measure electricity usage can give workers a reasonable view of the work-related percentage of bills – and providers also give you tools to measure things like daily internet usage.”

That sounds difficult. Is there an easier way to claim expenses?

Anticipating the difficulties taxpayers may have wrangling dozens of bills and receipts, the ATO introduced a “shortcut” method that allows employees to claim 80 cents in expenses for every hour they work from home.

Workers should expect a tax deduction of roughly $400 if they worked 40 hours a week from home since April.

But Tax Institute senior tax counsel and UNSW Professor in Taxation Bob Deutsch told The New Daily that when you account for an income tax rate of 32.5 per cent (applied to workers earning between $37,001 and $90,000), the tax effect is reduced to just $130.

Professor Deutsch said taxpayers who spent upwards of $300 on work-related expenses should therefore consider calculating their actual expenses – so long as they have the time to pore over the paperwork.

“If you’re the person who usually in the end-of-financial-year period is running around trying to find the shoebox full of receipts to present to your accountant, you’re probably better off taking the shortcut method,” Professor Deutsch said.

Got it. What about rent and home schooling costs?

Short answer: No.

Occupancy expenses (rent, mortgage or council rates) are generally not tax deductible – however, there is one exception.

If a worker can prove they have a cordoned-off space designed for work purposes, they may be eligible to claim the work-related portion, Professor Deutsch said.

“The classic example of this is a doctor’s surgery that is in a room of a private residence, and you make claims on a reasonable basis,” he said.

In those instances, workers calculate the size of their work space as a percentage of their overall home, and then claim this percentage of occupancy costs.

But Professor Deutsch said auditors pay particularly close attention to those who claim occupancy expenses.

And in unfortunate news for parents who juggled work responsibilities with child rearing, costs associated with the latter – including school equipment, new technologies, food and child care – are not tax deductible.

What are some common mistakes?

Xero’s Mr Prouse told The New Daily one of the most common mistakes is claiming expenses employers had already reimbursed.

With many businesses forking out thousands of dollars for company-wide Zoom licences, he expects some first-time remote workers to fall victim to this trap.

“The cost of software on an employer’s tax return may be huge, but if they’ve incurred those costs, there’s no expectation on the employee to also make a claim,” Mr Prouse said.

Proportionality is another common mistake, Professor Deutsch added.

This is where workers may claim entire household bills instead of the work-related portion.

“There have also been some well-known tax cases that came out of the Administrative Appeals Tribunal that were quite absurd,” Professor Deutsch said.

“One was made in relation to biscuits served to a tax accountant when they came to someone’s home, and another where a worker claimed salary expenses for their eight-year-old son who answered their phone.”

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