LAST MONTH this column explained the importance of getting your deductible expenditure records in order, to ensure you maximise your work-related deductions.
It focused on the two options available for claiming work-related motor vehicle expenses.
This month’s column will explain the three alternative methods for claiming home office expenses at label D5 in your tax return.
During the 21/22 financial year, many of you would have been required to or would have elected to work from home and most likely incurred significant additional expenses.
You may have received financial support either by reimbursement of specified costs such as Zoom software or computer/office equipment or by way of a specified allowance.
Employer reimbursements for out of pocket home office expenses are neither treated as assessable income or the expenses claimable as allowable deductions.
The provision of an employee working from home allowance will appear on your income statement provided by your employer or available from your ATO myTax account.
This allowance is taxable income and must be disclosed in your tax return in the salary or wages section in the box labelled Allowances.
Alternative options for claiming working from home expenses
To offset the tax on your allowance, you will need to claim deductions at D5 for the actual costs you have incurred; three methods for doing this have been outlined below.
a: The temporary COVID hourly rate of 80 cents per hour method.
This simple method requires minimal record-keeping and applies from March 1, 2020, to June 30, 2022, and I expect it will be extended to June 30, 2023.
If you elect to use this method, enter “COVID hourly rate” in the Description box — the letter H in the expense type box — and enter 100 in the business per cent box.
You should also indicate how you derived the number of hours worked in the space provided.
The 80 cents rate per hour covers all costs associated with working from home, including heating and cooling, electricity, cleaning, mobile phone, internet, computer consumables, and office furniture and equipment depreciation.
You cannot claim separately any other costs of working from home.
Apart from simplicity, the other advantages of this method are:
- You don’t need to have a separate or dedicated area of the home set aside for working as a private study.
- If the household has more than one resident working from home, they can also claim under this method.
- The only records required to be kept are time records such as diary records, timesheets, rosters, or any employer documents setting out required working hours and dates you commenced and ceased working from home.
b: The 52 cents per hour rate plus expenditures not included in the hourly rate method.
This alternative method prevailed prior to March 1, 2020, and is still available and may be preferred when significant costs are incurred that are not fully recovered by the 80 cents hourly rate method.
Home office expenses covered in the 52 cents hourly rate are running costs, including electricity and gas and depreciation of office furniture.
Other costs that may be claimed separately include office stationery and supplies, telephone and internet, and depreciation of office equipment such as computers, printers, scanners et cetera.
However, a disadvantage of this method is that you will need to apportion the costs not covered in the 52 cents rate between work-related usage and private usage.
For guidance on acceptable methods for apportioning phone, computer and internet expenses, go to the ATO website and search for document QC 46119.
This method is often favoured because it avoids the need to record and apportion gas and electricity and may regain popularity again once the 80 cents COVID hourly rate ceases to be available.
c: The actual expenses method.
(Expense x percentage of floor area) x percentage of weeks the area used for work
This method may be used as an alternative to claiming 52 cents per hour for running expenses such as lighting, heating, cooling, and cleaning.
You will need to work out the floor area of the part of your home that is used exclusively for work purposes and calculate that as a percentage of the total floor area.
Next, work out the percentage of the year you have used your dedicated work area or study for work-related purposes — after allowing for days in the year the work area was not utilised due to weekends, holidays, or illness — and then apply the reduced percentage to the amount of each of the above running costs.
Annual electricity cost is $5,600, the study area as a proportion of total floor area is 12 per cent.
Total weeks the study was used (in the financial year) for work purposes after allowing for four weeks of holidays and one week for illness is 47 out of 52 weeks which is 90 per cent.
Therefore, the deductible portion of the annual electricity bill claimed would be:
(5600 x .12) x .90 = $605.
Choosing a method
Suppose you cannot quantify your deductible home office expenses using either the 52 cents per hour method (method b) or the actual expenses method (method c).
In that case, I suggest you use the 80 cents method (method a), but make sure you can demonstrate how you arrived at the number of hours you worked at home.
If you have significant running costs but have insufficient expenditure records, you may prefer to use method b.
However, you will still need to work out the deductible portion of all other home office costs.
If you elect for method c, you must have records to show how you have calculated the work-related portion and have evidence of the costs incurred.
Claiming home office expenses is one area of your tax return where diligence on your part in retaining records and using the method that gives you the highest deduction may be well worth the effort.
The content of this article is not intended to be relied upon as professional advice and should not be used as such.
If you have any questions, you should consult a registered tax agent.
Brian Spurrell B A, B Com, Dip Ed, FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
PO Box 143 Warrandyte 3113 Ph: 0412 011 946