Work From Home Tax Deductions – How to Get it Right

Covid-19 meant so many people made the switch to work from home. Many of our own staff included! In fact as I write this, I’m in my new make-shift home office.

Here’s the good news: Work from home tax deductions could mean a bigger tax refund this year!

If work from home is your “new normal”, then you probably use your own internet, phone and power for work purposes – plus, in some cases, your computer, equipment and furniture. That means, you’ll have more things to claim on your tax return. And more deductions means a bigger tax refund in your pocket.

Let’s dig into work from home tax deductions.

But first, an important preview: If you just take the ATO’s advice and use their 80 cent per hour work from home deduction, you might get a smaller refund.

The ATO is running paid ads, telling people to use the 80 cent work from home deduction.

However, if you take the ATO’s advice, then you can’t add your other expenses (like phone, internet etc) on top. That means, the 80 cent rule might give you a smaller refund.

We’re going to help you get it right. You can read all about it down below, but the simplest way to go is let an accountant at Etax do most of the work for you.

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Work from home deductions – the low down

Home office expenses

All the things you use, to do your job at home, are potential tax deductions. Let’s make sure that, come tax time, you add those new work related expenses on your tax return.

Home office expenses are split into two types:

1. Running expenses: for when you do some of your work from home.
2. Occupancy expenses: if your permanent place of work IS your home.

If you are working from home on a temporary basis (like during COVID), it’s likely you would claim running expenses, rather than occupancy.

Running expenses are calculated at a nominal rate of $0.52 per hour you work at home. And, this rate includes:

• Heating
• Cooling
• Electricity
• Water
• Rent
• Mortgage Interest

It’s an easy way to make a claim for these items without trying to apportion a work vs personal amount for each one. Just keep a diary of how many hours you work from home each week and enter it on your tax return. Our tax return will calculate your deduction for you automatically.

Importantly, the running expenses rate does not include items like phone, internet, office furniture or computer depreciation. You make a separate claim for each of these items on your tax return.

On the other hand, occupancy expenses involve you working out a percentage of each item individually. You calculate the size of your office compared to the rest of your home and then claim that portion of your bills. For example, if your home office is 20m2 and your home is 200m2, you can claim 10% of your expenses on your tax return.

Important update on how to claim WFH deductions

Before March 1 2020, there was one golden rule about home office expenses:

You could not claim home office expenses on your tax return unless you actually had a home office space!

So what did that mean?

A home office is a designated room or area in your home set aside just for work that is not shared by other people and not used for other purposes. So basically, your kitchen table or the desk in your living room aren’t going to cut it as a home office in the eyes of the ATO. Their thinking was, you are not going to have any additional running expenses for that area, if the space is being used for other things anyway.

But COVID-19 changed this.

What’s changed?

Due to the huge increase in people working from home during Covid-19, there have been important changes to the rules about work from home tax deductions. From 1 March 2020 until 30 June 2022:

1. You don’t need an actual home office to claim home office expenses

For the duration of this period, the ATO allows home office deduction claims without the need for you to have an actual office. So you can now claim home office expenses if you work from the kitchen table or from your sofa.

2. The “Shortcut Method” is a new way to claim all deductible running expenses at a higher hourly rate (but, be careful).

Some people may have trouble calculating what they can and can’t claim on their tax returns (especially if they don’t use Etax).

The ATO introduced what they call the Shortcut Method for claiming running expenses during COVID-19.

This method means, you claim 80 cents per hour for every hour worked at home.

However, the ATO’s new “80 cents deduction method” covers ALL your expenses from working at home, so be careful. You can’t claim other, itemised expenses like phone, internet or computer use if you use the 80 cents method. And that’s why the ATO’s short cut method just might cut your tax refund short.

The original 52 cents per hour method does not include other expenses such as, phone and internet costs, computer consumables, stationery or the work related portion of the decline in value of office equipment. You claim each of those items separately, and usually get a bigger refund. We go into more detail with examples of this on our dedicated “working from home due to COVID-19” article.

Our advice to make sure you get it right… Talk to your tax agent (like Etax). Remember, it’s the ATO’s job to collect revenue for the Government, not help you get a better refund.

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Whatever method you use for claiming WFH tax deductions, remember the three golden rules:

1. You must have spent the money yourself and weren’t reimbursed,
2. It must be directly related to earning your income, and
3. You must have a record to prove it.

The list below are about specific tax deductions that might apply when you work from home:

• Car expenses, if you use your car for work related travel.
• Self education – if you pay to up-skill in an area of your existing job.
• Union fees
• Stationery: notebooks, paper, printer ink
• Trade magazines and books
• Tools and equipment
• Computers, laptops and software – if not supplied by your company
• Mobile phone costs
• Home internet costs

Hop over to our Home Office Expenses blog for heaps more info about what to claim and how to claim home office expenses as work at home tax deductions.

Take a read of our What are tax deductions blog so you’re totally up to speed on work related tax deductions

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Need a little motivation, or missing interaction, while you’re working at home?

You might feel a little isolated or unmotivated. So we’ve written a post about that too. It’s called How to stay productive and happy!

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Related tax articles:

• Home Office Expenses You Can Claim
• Tax Information for the Coronavirus Pandemic
• Coronavirus Stimulus for Individuals: Here’s everything you need to know.
• How to survive the lockdown