Further tax update on working from home
There is a barrage of, almost daily, statements and articles about new government assistance to individuals, employees and business, plus regular updates aimed at clarifying or adding to earlier information releases.
If you are working from home either under instruction from your employer, or running your own business out of home then this month’s column should be of interest to you.
If you have not read the April column titled COVID-19 Tax Update on Working from Home, may I suggest you read that in conjunction with what follows, a copy of the column can be found on my website.
The new fixed rate per hour method
In a media release on April 7, the ATO announced a “temporary simplified method (or shortcut method)” to make it easier for individual taxpayers to claim deductions for additional running expenses incurred, such as additional heating, cooling and lighting expenses, as a result of working from home due to the Coronavirus pandemic.
Based on this announcement and further details in the ATO release entitled Working from home during COVID-19, updated on April 15, 2020, the ATO advised it will allow individuals to claim a deduction for all home office running expenses incurred during the period from March 1 until at least June 30, 2020, based on a rate of 80 cents for each hour an individual carries out genuine work duties from home.
This is an alternative method to claiming home running expenses under existing arrangements, explained in my April edition article, being 52 cents per hour for heating, cooling, lighting and office furniture depreciation.
What is covered in the new
80c per hour option?
The new 80c per hour method is designed to cover all of the following running expenses associated with working from home and incurred from March 1, 2020:
- Electricity and gas expenses
associated with heating,cooling
and lighting the area at home
which is being used for work
- Cleaning costs for a dedicated
work area such as a home office.
- Phone and internet expenses.
- Computer consumables such as
printer paper, ink cartridges and
- Depreciation of home office
furniture and furnishings such
as an office desk and chair, filing
cabinets and bookcases.
- Depreciation of home office
equipment such as a computer,
printer and scanner.
Advantages of using the
80c per hour method
Under this method whilst separate claims cannot be made for any of the above running expenses, which could be substantial, the advantages of using this method from March 1, 2020, are as follows:
- No record keeping is required
other than a record of the number
of hours you have worked from
home as a result of COVID-19
such as timesheets, diary notes or
- There is no requirement to have a
separate or dedicated area at
home set aside for working such
as a private study.
- Multiple people living in the
same house could claim under
this method at 80c per hour
excluding school students of
Implications of not electing to use the 80c per hour method
You may elect to continue to use the 52c per hour method that was available from July 1, 2019, but that rate will only apply to running expenses for heating, cooling, lighting and furniture depreciation from the above list.
Unlike the 80c method, you will still have to undertake an analysis of the work related percentage of all of the remaining running expenses.
You will have to continue to maintain records of expenditure and retain all supporting documents as well as a time usage diary.
If you elect to use neither method, then you will have to resort to the actual expenses method for all expenses which is explained in detail in the April edition article, and have a dedicated work area or study set aside for work purposes.
If you are working from home only due to the consequences of COVID-19 you can’t claim occupancy expenses such as mortgage interest, rates, insurance, land taxes or rent.
Implications for the preparation
of your tax return
Regardless of whether you use a tax agent or prepare your tax return yourself, if you have, or will have, spent significant time working from home, you have to decide which of the three methods of claiming home office expenses you will elect to use for the period from March 1 to June 30 2020, and which of the two methods, 52c per hour or actual expenses method for the prior eight months.
If you elect to use the 80c rate you or your tax agent must include the note “COVID- hourly rate” in your tax return.
A word of advice
For many of you who have, or will have, spent a considerable amount of time working from home, it may well be worth devoting your time to:
- Documenting the hours you have
worked at home for work related
purposes, or as a requirement
from your employer or in
running your own business from
- Recording and filing all necessary
supporting documents relating to
allowable home office
- Working out the percentage split
between private and work related
portions of jointly incurred costs.
Armed with this information you or your tax agent should then be able to determine which of the three methods will deliver the greatest deductions for the eight months to February 29 and the four months June 30, 2020.
The ATO will be anticipating a significant increase in both the number and the amount of home office expenses claims for 2020 and consequently you can expect a much higher level of scrutiny of your claim.
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.
Further information on claiming work related expenses and the Covid-19 Government Assistance to Business and Individuals updated to March 30, 2020 is available on our website.
Brian Spurrell FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
P O Box 143 Warrandyte 3113.
0412 011 946